2023-11-01 12:07:53 ET
Summary
- CRISPR Therapeutics' exa-cel gene therapy for Sickle Cell Disease faces potential regulatory tripwires, which could impact FDA approval and the company's market valuation.
- Financially, CRISPR is in a robust position with $1.76B in liquid assets but grapples with elevated operating expenses and net loss.
- The market sentiment is mixed; while there's a high short interest, CRISPR's stock performance against SPY shows negative momentum.
- Investment Recommendation: Given the regulatory uncertainties and the biotech sector's volatility, a "Hold" position is advised.
At a Glance
In light of the recent Cellular, Tissue, and Gene Therapies Advisory Committee briefing document, CRISPR Therapeutics' ( CRSP ) exagamglogene autotemcel (exa-cel), in collaboration with Vertex ( VRTX ), stands at a critical juncture. The document highlights the gene therapy's precise targeting capabilities using CRISPR/Cas9 technology—a potential milestone for Sickle Cell Disease [SCD] treatments. However, it also casts a spotlight on potential regulatory tripwires, such as a limited sample size for safety assessments and questions surrounding chromatin landscape interactions. These clinical uncertainties could have significant ramifications for FDA approval and, subsequently, CRISPR's market valuation. Investors should closely monitor these nuanced clinical factors as they portend not just the product's viability but also the company's standing in an increasingly competitive field for SCD therapies.
Q2 Earnings
To begin my analysis, looking at CRISPR Therapeutics' most recent earnings report for the quarter ended June 30, 2023, the company posted a significant uptick in collaboration revenue to $70M compared to a paltry $158K in Q2 2022. Despite this, the firm grappled with elevated operating expenses totaling $165.2M, outpacing revenues and resulting in a net loss of $77.7M. The R&D expenses at $101.6M remain a concern. Share dilution is relatively modest; basic weighted-average common shares outstanding increased by only about 1.6M shares YoY.
The company is set to report Q3 earnings on November 7. Investors should stay tuned to the firm's R&D expenses, collaborative revenues, and cash runway. Moreover, the company will likely reveal manufacturing and marketing strategies heading into exa-cel's presumed December approval.
Financial Health
Turning to CRISPR Therapeutics' balance sheet , as of June 30, 2023, the company holds $444.8M in cash and cash equivalents and $1.32B in marketable securities, summing up to total liquid assets of $1.76B. The current ratio stands at a robust 14, calculated by dividing total current assets of $1.86B by total current liabilities of $132.8M. In terms of debt, CRISPR's balance sheet reveals minimal leverage with no short-term or long-term debt listed.
Over the last six months, the net cash used in operating activities is negative at $124.4M, translating to a monthly cash burn rate of approximately $20.7M. By dividing the total liquid assets of $1.76B by this monthly cash burn, CRISPR has a runway of about 85 months under current conditions. However, this estimate is based on historical data and may not predict future performance accurately.
Considering the substantial cash position and minimal monthly burn, the odds of CRISPR requiring additional financing within the next twelve months seem low.
Market Sentiment
According to Seeking Alpha data, CRISPR Therapeutics' market cap of $3.09B amidst transformative revenue growth suggests low-to-moderate market confidence. Analysts project a remarkable YoY revenue spike in 2023, but a contraction in 2024, implying that short-term growth prospects are high but fraught with volatility. Stock performance against SPY shows negative momentum over 3, 6, 9, and 12-month periods. A high short interest of 17.3% with 12.44 days to cover signals considerable skepticism.
Technically, CRSP exhibits a bearish trend, trading below both the MA(50) and MA(200) lines. The RSI at 36.54 suggests it's nearing oversold territory. MACD indicates bearish momentum with the blue line below the signal line. The recent price movement shows a decline with no significant bullish signals. Immediate resistance lies near the MA(50) level, while current support is being tested at the stock's recent lows.
Institutional ownership sits at 69.01%; new positions account for 1,462,131 shares while sold out positions are at 209,237. Key holders include ARK Investment Management, Capital International, and T. Rowe Price. Insider activity for the past 12 months shows net selling of 221,626 shares, indicating possible internal bearish sentiment.
Evaluating Exa-cel's Risk-Benefit Profile for SCD Treatment
As the FDA prepares for its December 8, 2023 decision on exa-cel, a CRISPR/Cas9-based gene therapy for SCD, the stakes are high. The recent briefing document from the Cellular, Tissue, and Gene Therapies Advisory Committee offers a window into the therapy's potential and pitfalls, setting the stage for a critical regulatory decision.
On the positive side, exa-cel's use of CRISPR/Cas9 technology offers a level of precision that could be transformative for SCD treatment. Unlike existing broad-spectrum therapies, exa-cel specifically targets the BCL11A gene, a key regulator of hemoglobin. This targeted approach could herald a new era in SCD treatment. Adding a layer of credibility is the detailed outline of exa-cel's mechanism of action provided in the briefing document. A well-understood mechanism can not only expedite the regulatory process but also facilitate post-marketing surveillance. Furthermore, the document's section on product manufacturing suggests that exa-cel has undergone a rigorous development process, potentially mitigating some of the risks commonly associated with gene therapies. Lastly, the application is backed by efficacy data from multiple sources, which could strengthen its case for approval.
However, the briefing document also raises several concerns that could weigh on the FDA's decision. One such concern is the limited sample size used for assessing off-target effects. Given the genetic diversity within the SCD patient population, a limited sample size could result in skewed safety data, potentially missing rare but significant off-target effects. Another nuanced but critical point is the impact of SCD itself on chromatin landscapes, which could affect gene expression and, by extension, the therapy's efficacy and safety. The document suggests that this aspect may not have been adequately addressed in exa-cel's application. Additionally, the document questions the comprehensiveness of variant coverage in the target population, raising concerns about unforeseen off-target effects, particularly in underrepresented populations. Finally, one off-target locus was alarmingly close to the ATM gene, which is associated with neurodegenerative diseases and increased cancer risks. While a risk assessment was provided, the mere proximity to such a critical gene could be a red flag for regulators.
At the end of the day, the FDA's decision will likely hinge on a delicate balancing act: whether exa-cel's therapeutic benefits can outweigh these nuanced but significant concerns.
Navigating the Economics of CRISPR and bluebird's SCD Therapies
The gene therapy market for the treatment of SCD is evolving with two innovative therapies by CRISPR’s and bluebird bio ( BLUE ), currently under the FDA's purview for approval. CRISPR’s exa-cel utilizes CRISPR technology to augment fetal hemoglobin levels, while bluebird bio’s lovotibeglogene autotemcel (lovo-cel) employs a lentiviral vector to insert a functional HBB gene variant into patients' stem cells, each demonstrating a distinct therapeutic strategy. Both therapies have showcased significant clinical benefit in reducing vaso-occlusive events, a hallmark of SCD, in their respective trials.
The economic burden of SCD is substantial, with total economic costs in the US approximated at "$2.98 billion" annually. The Institute for Clinical and Economic Review (ICER) report posits a placeholder price of $2 million per treatment course for both gene therapies. This pricing structure allows for the treatment of 15.5% of patients over a span of five years without exceeding the ICER budget impact threshold of $777 million per year. Despite the high upfront costs, the ICER report does not foresee a rapid initial uptake of these therapies, indicating a measured introduction into the market that may not immediately strain budgetary allocations.
The acceptance of gene therapy among payers, patients, and providers hinges on multiple factors including cost, disease severity, long-term efficacy, and safety. The ICER report accentuates a net health benefit for both exa-cel and lovo-cel compared to the standard of care, affirming a positive step towards the adoption of these gene therapies. Nonetheless, the report underscores the need for a meticulous examination of safety concerns, especially given the serious adverse events noted in clinical trials, and the uncertainties surrounding long-term risks in real-world settings.
The FDA's favorable stance towards gene-editing treatments for SCD, coupled with patients' positive reception in clinical trials, sets a conducive environment for the adoption of these therapies. Further, international partnerships, such as those led by the Bill & Melinda Gates Foundation alongside the US National Institutes of Health and Novartis, aim to ameliorate access disparities in low- and middle-income countries, potentially catalyzing global adoption.
My Analysis & Recommendation
In the wake of CRISPR Therapeutics transformative revenue growth and the FDA's upcoming decision on exa-cel, a nuanced financial narrative is unfolding. The company's robust liquidity position, underscored by a sizable cash reserve and a controlled monthly cash burn rate, paints a reassuring picture of its short-term financial stability. However, the persistent net losses driven by escalating R&D expenses underscore a risk-laden pathway, typical in the biotech sector, which is further accentuated by the volatile stock performance and substantial short interest.
Investors should closely monitor the FDA’s verdict on exa-cel scheduled for December 8, 2023. A favorable decision could catalyze a positive market reaction, potentially improving the stock's momentum. Conversely, a negative outcome may exacerbate the bearish sentiment, thereby impacting the share price adversely. It's imperative for investors to diversify their portfolios to mitigate the inherent risks associated with regulatory uncertainties. In parallel, the strategic focus should encompass monitoring competitive landscape, especially the rivalry with bluebird bio, which also stands on the cusp of regulatory decisions for its gene therapy, lovo-cel.
Furthermore, an eye on insider trading activity and institutional ownership trends could provide insights into the internal and external confidence surrounding CRISPR’s strategic direction and financial health. The high cost of gene therapies and the need for innovative payment models also echo a broader market dynamic that could influence CRISPR's long-term market positioning and revenue growth.
Considering the aforementioned factors, coupled with the inherent volatility in the biotech sector, a confidence score of 45/100 (slightly bearish) is accorded, aligning with a "Hold" investment recommendation. This score mirrors the company’s solid financial health and promising clinical focus against a backdrop of regulatory uncertainties and market dynamics that could significantly sway investor sentiment and stock performance in the near term.
For further details see:
Risk And Reward: Evaluating Crispr's Exa-Cel For Sickle Cell