2023-04-28 15:00:52 ET
Summary
- Two months after my last bullish note on Crispr Therapeutics, predicting a bull run, the share price has barely budged.
- I find this surprising. Crispr and partner Vertex have now submitted their biologics license application to the FDA for approval of Sickle Cell Disease therapy.
- This "one and done" gene therapy could be available for a patient pool of 32k early next year.
- With a mooted price tag of $1.9m, the revenue opportunity is clear, and the drug seemingly ticks all the safety and efficacy boxes.
- Perhaps we'll simply have to wait longer for the market to start increasing its valuation of CRSP stock - but I remain confident that's what will happen.
Investment Overview
A couple of months ago I posted a note on Crispr Therapeutics (CRSP) entitled "I sense a long bull run as first approval approaches." Since that note, Crispr stock has risen in value by less than 0.5% - so was there a flaw in my argument?
As many people will be aware, Crispr - which stands for Clustered, Regularly Interspaced, Short Palindromic Repeats - is Nobel Prize winning technology. It's a defense mechanism used by bacteria - the best description I can find is by the Jackson Laboratory:
Repetitive DNA sequences, called Crispr, were observed in bacteria with "spacer" DNA sequences in between the repeats that exactly match viral sequences. It was subsequently discovered that bacteria transcribe these DNA elements to RNA upon viral infection. The RNA guides a nuclease (a protein that cleaves DNA) to the viral DNA to cut it, providing protection against the virus. The nucleases are named "Cas," for "CRISPR-associated.
In 2012, researchers demonstrated that RNAs could be constructed to guide a Cas nuclease (Cas9 was the first used) to any DNA sequence. The so-called guide RNA can also be made so that it will be specific to only that one sequence, improving the chances that the DNA will be cut at that site and nowhere else in the genome. Further testing revealed that the system works quite well in all types of cells, including human cells.
Those researchers were Dr. Jennifer Doudna and Dr. Emmanuelle Charpentier and they were awarded the Nobel Prize for their work. Crispr Therapeutics acquired rights to the intellectual property ("IP") encompassing Crispr/Cas9 from Dr Charpentier, although it should be noted that these patents are disputed by the Broad Institute, Harvard, which claim that they were the first to file a patent for use of the technology in eukaryotes i.e. cells with a nucleus, and whose claims have been upheld in court .
Back to Crispr Therapeutics, which went public in 2016 and is the closest to having a first ever Crispr/Cas9 therapy approved for commercial use. The beauty of a gene editing technology like this is it can reprogram mutated genes and offer permanent cures for diseases - the potential of this technology is very exciting indeed.
Exa-Cel Evidence To Support Safety, Efficacy and Commercial Viability
Crispr Therapeutics' lead candidate is CTX-001 - now known as Exagamglogene Autotemcel, or Exa-Cal for short. Exa-Cel is an ex-vivo therapy designed to treat patients with either Sickle Cell Disease ("SCD") or beta thalassemia.
Both diseases restrict the production of hemoglobin, causing life-long suffering, characterized by fatigue, painful vaso-occlusive episodes ("VOCs"), and often more serious complications.
As I explained in my last note:
Exa-Cel works by editing a SCD patient's own hematopoietic stem cells ex vivo (in a lab after extracting them from the patients) so that they produce high levels of fetal haemoglobin in red blood cells, compensating for the existing dysfunctional cells in the patients caused by the disease. This type of therapy is known as an autologous therapy, since it uses the patient's own cells, as opposed to using donor cells - which is known as "allogeneic" therapy.
How do we know Exa-Cel works? Because 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 ).
How do we know Exa-Cel will be a commercial success (the price of a gene therapy is typically very high and other, non-permanent therapies are available to treat TDT and SCD)? Because back in 2021, Crispr Therapeutics partner on the Exa-Cel program, Vertex (VRTX) paid it $900m to increase its future share of net sales of Exa-Cel from 50%, to 60%, which implies Vertex values the drug at ~$9bn.
And finally, how do we know Exa-Cel is safe? Safety data from the CLIMB-111 study is described in Crispr Therapeutics' 2022 10K submission as "generally consistent with an autologous stem cell transplant and myeloablative conditioning." Two patients did experience Serious Adverse Events ("SAEs"), although these were resolved. Regarding safety data from the CLIMB-121 study, Crispr Therapeutics says that "there were no SAEs considered related or possibly related to exa-cel." For good measure, the company has initiated an open label safety study, CLIMB-131, that will follow participants for up to 15 years after exa-cel infusion.
Biologics License Application Now Filed For Exa-Cel
On April 3, Crispr Therapeutics and Vertex issued a press release announcing the:
Completion of the rolling Biologics License Applications ("BLAs") to the U.S. Food and Drug Administration ("FDA") for the investigational treatment exagamglogene autotemcel (exa-cel) for sickle cell disease ("SCD") and transfusion-dependent beta thalassemia ("TDT").
Vertex' Chief Medical Officer ("CMO") Carmen Bozic called it a "historic milestone," and the press release confirmed that Marketing Authorization Applications had been filed with the European Medicines Agency also, as well as with the UK authorities.
The companies hope that the FDA will shorten its review timeline for a rolling submission from 12 months, to 8, suggesting that Ex-Cel could become the first ever approved Crispr/Cas9 gene editing therapy to be approved in the US.
It's hard to think of reasons why the applications won't be accepted in the US, Europe and the UK based on the available evidence, and yet, Crispr Therapeutics share price has stubbornly refused to budge. The stock price is up 20% so far this year, but down 5% over the past 12 months, and down 2% over the past 5 years. Current price is $49.
Consider the fact that Crispr Therapeutics' share price hit a peak of $200 per share back in early 2021, around the time the Vertex additional payment was received.
Based on current share count a share price of $200 would imply a market cap valuation of ~$15bn - would that be so unrealistic for a company that expects to secure an approval that a major pharma like Vertex is willing pay $900m for a 10% share of sales?
Defining The Market Opportunity - Strengths and Weaknesses
Normally, when a company as large as Vertex - or indeed any pre-commercial stage biotech like Crispr Therapeutics - is preparing to launch a new therapy, there's plenty of speculation over what the peak sales figure might look like, but not many analysts have opted to speculate on Exa-Cel.
The reality is that an ex-vivo cell therapy is an unpleasant experience for a patient who must undergo something akin to chemotherapy - lymphodepletion - before cells are harvested, and the whole prospect of having cells genetically engineered in a lab and then reintroduced into a patient's immune system may put patients off, when other therapies are available.
Granted, these other therapies may not offer a permanent cure, but as I noted in my last post, Pfizer was prepared for pay $5.4bn last year to acquire Global Blood Therapeutics and its Sickle Cell Disease drug franchise. That may seem odd when you consider there may be a permanent cure available within a year, but then again, as much as the lymphodepletion may be off-putting, the price tag may be also.
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.
Neither company is prepared to provide a price point of their own, although Vertex does have a launch plan in place that involves 50 authorized treatment centers, and 25 in Europe, and a target patient population of 32k patients.
Some simple math therefore suggests an initial market opportunity of $60.8bn. If we halve that based on the (unlikely, given its financing issues) scenario that market share is split 50/50 with bluebird, and then calculate 40% of the remainder (Crispr's agreed revenue split with Vertex) we get $12.6bn.
Now let's imagine that Crispr Therapeutics therefore earns $1.26bn per annum for a decade via Exa-Cel revenues alone - does that warrant a higher market cap valuation than the current $3.9bn? I would suggest it does, based on a rule of thumb price to sales ratio of 5x, but we should also not forget that Crispr Therapeutics reported a cash position of $1.8bn as of Q422, plus five more clinical-stage assets in its pipeline, targeting diseases such as cancer and diabetes - some of the biggest pharmaceutical markets.
Back in 2021, the market agreed that Crispr deserved a much higher valuation, yet here we are two years later, with the regulatory path to approval nearly complete, and Crispr is worth 5x less than it was in 2021 - what has happened?
Market research conducted by Vertex suggests physicians are more than willing to prescribe the therapy to patients, but will insurers reimburse for the procedure? Based on Vertex' estimation that SCD costs amount to $4 - $6m over a lifetime in medication, it seems quite possible that insurers would reimburse for such a drug, and given that this is Vertex' most important near-term drug launch, and its first move outside of its tried and trusted Cystic Fibrosis franchise, it also seems likely the company has done its market research on this possibility too.
Another argument that could be made is that with a gene therapy, Crispr Therapeutics and Vertex could run out of patients to treat. That could be true based on the initial target patient population of 32k, but Crispr believes the market opportunity will grow exponentially higher that as the current standard-of-care conditioning treatments improve.
Exa-Cel potential addressable market (CRISPR investor presentation)
Yes, the so-called "targeted" conditioning is not ready yet, and an in vivo therapy, as desirable as that may be, could be years away, or could be developed by another company - the list of gene therapy companies developing SCD and TDT therapies is a long one.
Nevertheless, Crispr Therapeutics seems likely to win the race for a first ex-vivo approval, so who would bet against it winning the in-vivo race also? The market opportunity in in-vivo is mind boggling. It will take a long time and a lot of medication to functionally cure nearly half a million patients.
Conclusion - Why Is The Market Reluctant To Buy Crispr Therapeutics? Perhaps It's Just A Matter Of Time
After my call in late February that Crispr stock would begin to climb and climb, I must say I am surprised to be here two months later with the stock price up just 0.5%.
Once again, I have looked at the investment opportunity in detail - and the progress made since my last note, which includes the submission of the BLA to the FDA.
I struggle to find reasons why Crispr's price is not rising, but I can offer a few summary explanations. At a market cap of nearly $4bn, Crispr stock is not exactly cheap, and in fairness, neither the "one and done" gene therapy market opportunity is proven in TDT or SCD.
The corollary to the latter argument is that I would think after a few patients have successfully completed the procedure and become transfusion independent and no longer experience VOCs, there will likely be a clamor among patients for the therapy.
Regarding the former argument, when the market was prepared to pay $200 per share for Crispr stock in 2021, it seems odd that it won't pay half, or even one third of that sum today.
Long-term safety could be an issue, and the preconditioning problematic for many people, but once again I'd emphasize the idea that once 100 patients have completed the therapy and been cured, there may be a stampede for this drug - and physicians are also supportive of it.
The price of failure would be high - Crispr made a net loss of $670m in FY22- but then again, there is still $1.8bn of funding available, and with a partner like Vertex - a commercially very successful company - the launch of Exa-Cel stands a good chance of success. Could the FDA reject the drug? It's tough to think of what evidence the agency would use to deny the approval in that instance.
Could Europe refuse to pay a price of $1.9m for the therapy? Something similar happened to bluebird with one of its earlier therapies, Zyntelgo indicated for beta thalassemia, but surely a company like Vertex would not repeat Bluebird's error and price itself out of the market.
Could it be the patent dispute with the Broad Institute be a factor? Frankly, it could take years to resolve this dispute, and in any case, wouldn't the Broad Institute be keen to license its patents to Vertex and Crispr Therapeutics if it did finally win this battle, as opposed to denying the public access to a potentially breakthrough gene therapy?
In summary, after a second round of research into Exa-Cel, Crispr Therapeutics and Vertex, I still find the market's refusal to budge on Crispr Therapeutics valuation perplexing.
Perhaps it's simply based on fear of the unknown - if the therapy sounds too good to be true, then perhaps it is, and perhaps there is some as yet undiscovered underlying safety issue that will only be uncovered many years too late. That sounds a little too similar to the "anti-vax" arguments however. Safety is certainly paramount, but all the available evidence seems to suggest this is a therapy that can be trusted.
As such, I'm maintaining my bullish stance on Crispr Therapeutics stock. I hope that the FDA opts to convene an Advisory Committee to discuss any and all safety implications prior to approving the drug. I also hope that an in-vivo SCD therapy can be developed in time.
Perhaps a final concern is that a different company will make that breakthrough, but as much as the pharma industry is about "jam tomorrow" rather than "jam today," sometimes you have to acknowledge that a company has a very promising drug on its hands that could generate blockbuster sales for a decade or more, and then you have to price that company accordingly.
For further details see:
Crispr Therapeutics: Upside Likely Coming Now That Exa-Cel Is With FDA