Investment Overview – Investors Struggle To Make Up Their Minds on Crispr Despite Sickle Cell Disease Approval Progress
Studying the share price performance of Crispr Therapeutics (NASDAQ:CRSP) during the past five years, one thing seems clear – investors and the market can’t make up their minds about this gene editing company.
Overall, since its 2016 IPO raised ~$56m at a price of $14 per share, Crispr’s share price has risen in value by ~250%, trading at exactly $50 at the time of writing. Over the same period, the S&P 500 has gained ~90%, so anybody fortunate enough to back Crispr from the outset has earned a handsome return on their investment.
With that said, in January 2021 Crispr stock was worth >$190 per share, and in June 2021 >$155 per share. The company had at that time just received a $900m upfront payment from its partner Vertex (VRTX), the Boston-based Cystic Fibrosis giant – $8.9bn of revenues in 2022 – for an additional 10% share of net sales from the two companies’ Beta Thalassemia / Sickle Cell Disease therapy, CTX-001 – which was expected to file for regulatory approval within 18 – 24 months.
Fast forward 18 months, and CRISPR has now made its regulatory submission for CTX-001 – now known as Exagamglogene Autotemcel, or Exa-Cal for short – to the European Medicines Agency (“EMA”), and is on track to complete its Biologics License Application (“BLA”) submission to the FDA by the end of this quarter (Q123).
That being the case, the obvious question would be – why is Crispr’s share price trading at a ~70% discount to former highs when the progress the company has made is exactly what was promised back in July 2021?
After announcing its Q422 and FY22 earnings on Feb. 21 – earlier this week – Crispr’s share price leapt from ~$47, to ~$50 – a nice break for shareholders, but barely a significant move when we consider historical share price performance. Today Crispr’s market cap valuation is ~$3.8bn – in June 2021, it was >$12bn.
In this post I will further explore this discrepancy, providing an overview of the near-term opportunity in SCD / TDT and highlighting some areas of risk. As a holder of Crispr Therapeutics stock for over a year my investment is worth more or less the same as it was when I bought it, although it has been worth much more than I paid for it, and much less.
I am optimistic that Crispr deserves a higher valuation and that its stock will make a substantial gain should it win approval in Europe and the US for Exa-Cel, as I suspect it will. Nothing in the world drug development is ever straightforward however, so it’s important to understand the risk reward profile before taking the plunge. Biotech investing is not for the risk averse.
Exa-Cel – Can Crispr Therapeutics Deliver The First Ever Approved CRISPR / Cas9 Gene Editing Therapy?
The data supporting Crispr’s marketing applications for Exa-Cel are persuasive.
Sickle Cell Disease (“SCD”) is an inherited red blood cell condition that causes severe chest pain, known as a vaso-occlusive crisis (“VOC”), and can lead to serious health conditions such as stroke. Severe forms of SCD are normally treated with regular blood transfusions, which are time consuming, inconvenient, expensive, and do not cure the disease.
Exa Cel works by editing 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.
In Crispr’s pivotal CLIMB-121 Study, after treatment with Exa-Cel – data reported in Q422 at the American Society of Hematology (“ASH”), showed that all 31 patients were VOC-free after a median follow-up of 10.2 months (range: 2.0 – 32.3 months).
In effect, based on the data to date, these patients have been “functionally cured” of their disease. Additionally, there were no Serious Adverse Events (“SAEs”) considered related or possibly related to exa-cel, and the majority of non-serious adverse events were considered mild to moderate.
That probably deserves to be considered a miraculous achievement – patients who faced a life-time of blood transfusions and severe chest pain may never require another transfusion or never experience another VOC thanks to Exa-Cel. This it is arguably the single biggest vindication of CRISPR/Cas9 gene editing technology as a “one and done” therapy.
This technology, which has been adapted from a self defense mechanism used by bacteria and allows for precise cutting and editing of DNA, via a 3-step process of recognition, cleavage and repair, has been the subject of a Nobel Prize awarded to Emmanuelle Charpentier and Jennifer Doudna, the former being a Scientific Co-Founder of the company.
Exa-Cel appears to work equally well in treating a disease known as beta thalassemia, an inherited blood disorder that inhibits the production of hemoglobin. According to MedlinePlus:
Many people with thalassemia major have such severe symptoms that they need frequent blood transfusions to replenish their red blood cell supply. Over time, an influx of iron-containing hemoglobin from chronic blood transfusions can lead to a buildup of iron in the body, resulting in liver, heart, and hormone problems.
In its pivotal CLIMB-III study of Exa Cel in transfusion-dependent Thalassemia (“TDT”) patients, according to date also presented at ASH last year:
With a median follow-up of 11.9 months (range: 1.2 to 37.2 months), 42 of 44 patients with TDT treated with exa-cel were transfusion-free (0.8-36.2 months) and the two patients who had not yet stopped transfusions had reduced transfusion volume by 75% and 89%, respectively. (Source: Crispr Therapeutics 10K submission)
In summary, then, Exa-Cel appears to have a very strong chance of being the first ever approved Crispr-based therapy, and that ought to be very rewarding for CRISPR shareholders.
Market Opportunity For Exa-Cel – This Is Arguably A Blockbuster Opportunity For Crispr
Exa-Cel won’t be the first therapy approved to treat TDT or SCD. Global Blood Therapeutics’ Oxbryta tablets were approved to treat anemia caused by SCD back in 2021 – sales were $55m in Q122 and Swiss pharma giant Novartis (NVS) won approval for the injectable Adakveo in 2019 to treat VOCs – sales were $194m across the whole of 2022.
Interestingly, Global Blood Therapeutics was acquired by Pfizer (PFE) for $5.4bn in August last year, with Pfizer stating the company had the “potential to address the full spectrum of critical needs in the underserved sickle cell community” and pointing to a Phase 2/2 stage, oral, next-generation sickle hemoglobin (HbS) polymerization inhibitor, which it says has “best-in-class agent targeting improvement in both hemolysis and frequency of VOC. A third asset, inclacumab – a fully human monoclonal antibody targeting P-selectin – is in Phase 3 clinical studies as “a potential quarterly treatment to reduce the frequency of VOCs and to reduce hospital readmission rates due to VOC.”
If Exa-Cel can permanently prevent VOC’s then it seems an odd move by Pfizer to invest heavily into an SCD franchise. There are a couple of reasons for this. Most importantly, a large number of patients will likely find the preconditioning process required before cells are harvested – which is similar to a round of chemotherapy – too aggressive.
In its Q422 earnings presentation, Crispr suggests that only 7k TDT patients and 25k SCD patients would be eligible for its therapy initially, although the company hopes that its development of “targeted conditioning” will expand those numbers to 16k TDT and 150k SCD patients. Longer term still, Crispr hope that it can figure out how to administer Exa-Cel in vivo, and expand its patient population still further, to 100k+ TDT and 350k+ SCD patients.
Crispr defines the TDT patient population (in its 2022 10K submission) as follows:
The total worldwide incidence of beta thalassemia is estimated to be 60,000 births annually, the total prevalence in the United States and the European Union, or EU, is estimated to be approximately 16,000 and there are over 200,000 people worldwide who are alive and registered as receiving treatment for the disease.
And SCD is discussed as follows:
The worldwide incidence of SCD is estimated to be 300,000 births annually and there are 20-25 million people worldwide with the disease. In the United States and the European Union, the total prevalence is estimated to be 150,000 individuals.
To summarize, it’s clear that the likes of Oxbryta, Adakveo and even Pfizer’s pipeline assets have not been made redundant just yet. The majority of SCD and TDT patients will not be steered in the direction of Exa-Cel, on health, or financial grounds.
Discussing the market opportunity for Exa-Cel on its Q422 earnings call, Vertex management said its initial focus post approval would be the 25K SCD patients and 7k TDT patients whose need for a curative therapy is greatest. Vertex advised analysts that the lifetime treatment costs of a severe SCD patients is ~$4m – $6m.
A ballpark figure for the cost of Exa-Cel, then, could be ~$1m, which would be justifiable based on the amount it would save the healthcare industry long term, and a patient population of 32k would therefore create a market opportunity of ~$32bn. Considering these figures, it does not seem surprising that Vertex would pay Crispr $900m for a an additional 10% share of revenues.
If Vertex and Crispr were to treat 10% of those 32k patients per annum, then Exa-Cel would earn ~$3.2bn per annum in revenues, with Vertex earning ~$1.9bn of that figure, and Crispr ~$1.3bn. Working on the assumption that a commercial stage biotech is typically valued at ~5x sales – which may be a little conservative, since Vertex itself trades at ~8x sales – then CRISPR ought to enjoy a market cap valuation of at least $6.5bn, which is a 71% premium to its current value.
Naturally, there will be obstacles to success – Exa Cel is not even approved yet, after all, although Vertex stuck a very positive note on its recent earnings call, advising that it expected Exa-Cel to be its next commercial approval, and then claiming that:
Recent market research indicates that physicians have a strong preference and interest in gene editing over other potentially curative approaches.
Vertex management goes on to speak about how all 32k patients can be treated via a network of 50 treatment centers in the US, and 25 in Europe. Vertex says it has the:
… supply chain and manufacturing infrastructure to support the launch, including validated chain of identity and chain of custody systems, global shipping infrastructure, and the needed manufacturing capacity to support uptake following approval.
Finally, Vertex says it has spoken to all US state Medicaid agencies, and 150 commercial payors, plus regulatory agencies in Europe:
to share important information about exa-cel and our commitment to working collaboratively to provide access to this therapy.
Conclusion – Based on Exa-Cel alone, Crispr Looks Significantly Undervalued
I believe that the small bump in value that Crispr stock experienced this week is likely to be the start of a longer upward climb – a company with a near-term revenue opportunity that is likely be a blockbuster one deserves a market cap valuation of >$5bn, at least, and Crispr is that company and therefore its valuation ought to trend in that direction.
There are some caveats to consider – the 4 I would attach most significance to are as follows:
- The durability of Exa-Cel has not been proven beyond doubt – several studies are ongoing and if there is any hint of serious adverse safety events emerging, the drug will likely be shelved, perhaps permanently.
- Physicians and patients will take quite some persuading to respectively recommend, and undergo a difficult and painful treatment in order to receive Exa-Cel, and especially so when there are other drugs available that may not be efficacious, but can be taken orally, or injected infrequently.
- Crispr’s Exa-Cel is in fact not the only “one and done” gene therapy that could be approved this year. bluebird bio (BLUE) is also seeking approval for Lovo-Cel. This is not a Crispr therapy, instead using a viral vector approach, but it is showing efficacy and safest in studies and is an unwanted competitor for Crispr / Vertex that could drive the price of the therapy down.
- Crispr is in an ongoing dispute with the Broad Institute Harvard about who owns the patents to the technology and therapy. In Crispr’s corner is “CVC” – Doudna and Charpentier and the Universities of Vienna and Berkeley – but recently Broad has won the backing of the courts. In the unlikely event this dispute ever resolves, and it resolves in the Broad Institute’s favour it could seriously impact the future of Exa-Cel.
Now, however, if we think about the positives. Exa-Cel is a ground breaking therapy and a validation of CRISPR’s approach. Amongst all of the CRISPR focused companies – Intellia (NTLA), Beam Therapeutics (BEAM), Editas (EDIT), and countless other gene therapy companies – most of whom have drugs designed to treat SCD – CRISPR looks very likely to win the race to market.
In this post, I have also not touched upon any of Crispr’s other assets:
As we can see above there is a host of additional prospects here, taking in in-vivo therapeutics, allogeneic CAR_T cell therapies, huge market opportunities such as diabetes, and more partnerships – with Bayer, for example, and Nkarta Therapeutics.
As such, even if there was no Exa-Cel, I suspect I would still be recommending Crispr as an investment opportunity – when Intellia showed that one of its in vivo therapies had an efficacious effect in a tiny study, for example, its market cap valuation spiked >$10bn overnight. CRISPR has assets in its pipeline that could trigger a similar spike.
Ultimately, I suspect the market is exercising extreme caution with regard to Crispr as a result of a torrid biotech bear market in 2022, the lack of evidence of the durability of its therapies, competitive threats, and general skepticism / bearish inertia.
I expect that Crispr will answer many of these concerns in 2023 with its first full approval, and with a partner as strong as Vertex, commercial success. For good measure, Crispr is sitting on $1.8bn of cash in case anything should go wrong. Crispr’s share price nudged in the right direction this week, although I suspect this could be the start of one of the company’s long bull runs.
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