Wall Street is a fickle lover indeed. One day you are the darling of analysts, pundits and investors, and the next day Wall Street’s roving eye has moved on to the next hot young technology.
Just yesterday, gene editing stocks were all the rage; they enjoyed soaring share prices despite no profits and little revenue to speak of. But lately these shares have sold off. The three leading names in the burgeoning field of gene editing are all at least 30% off their peak. Is this a good time to buy some innovation on sale, or have these companies sold off for a reason? Let’s take a look at Crispr Therapeutics ($CRSP), Editas Medicine ($EDIT) and Bluebird Bio ($BLUE) to determine which represents the best value.
1) CRISPR Therapeutics ($CRSP)
This company has the biggest name in the new world of gene editing. One of the company’s founders is Dr. Emmanuelle Charpentier, a European scientist renowned as one of the mothers of the CRISPR gene editing technology. The largest single shareholder is Cathie Wood’s Ark Investment Management, which typically acts as a relentless cheerleader for portfolio companies.
Lastly, the company is the best known amongst the gene editing disruptors because of, well, the name. They were founded by an inventor of the CRISPR technology, they have CRISPR in their name and stock ticker, and their research is dedicated exclusively to uses of the CRISPR Cas9 technology. This is a powerful branding posture. Type in the acronym “CRISPR” to Google and you will pull up thousands of articles and videos explaining and extolling this important technological breakthrough. This means that anyone with a dollar to invest in biotech knows about CRISPR Therapeutics.
The company doesn’t just talk the talk; it also walks the walk. Their efforts could broadly be divided into two different categories; cures for blood diseases such as sickle cell anemia and Beta Thalysisma, and treatments for cancer which leverage CRISPR to enhance the human immune system. They are making great progress on both fronts, with a total of five different therapies now in phase I or II testing on human test subjects in the clinic. They also have a variety of other applications for their technology brewing in the preclinical stage.
Early clinical results have been very positive. Safety concerns have been few, and initial studies have confirmed that CRISPR gene editing has the ability to make permanent, positive changes to defective human bodies. Although the company may still be years away from revenue (they have zero agents in phase 3 studies), their status as a media darling has enabled them to raise a massive war chest. As of year end, 2020, they had roughly $1.6 Billion in the bank. That same year they burned about $230 Million in cash. So, time is on CRISPR’s side. They can continue to advance their platform for at least five years before having to worry about prosaic concerns like profitability.
On top of this promising scenario, some of the hot air has come out of the shares of late. The shares are down about 30% since January of this year. Why?
Sometimes there is no reason. The company has announced little other than positive news. However, as we will see, the whole sector has lost some of its appeal as the financial media has moved onto it’s next shiny plaything. As Covid vaccination has taken off, and our nation’s economic prospects have improved, many investors have chosen to move their money into cyclical stocks. The idea is that these cyclical “reopening” stocks will see immediate improvement in metrics over the next 12 months as we put Covid behind us. Companies like $CRSP, while clearly demonstrating enormous potential, require some patience. Profit is years away. If there is one thing stock investors are not known for, it’s patience.
So, a cutting edge biotech with big name recognition, a growing pipeline, and rock solid funding. It must be a buy, right? Maybe.
Valuation is a concern. Even having fallen 30% in just three months, $CRISP still has a market capitalization above $9,000,000,000. That is awfully high for a company with no profit, little revenue, and no prospect of an approved product for at least a few years. One blockbuster drug can easily equate to $1 or $2 Billion in annual sales. With a valuation of $9 Billion, CRISPR Therapeutics is at best fairly valued. $CRISP could currently be valued as highly as 6 or 7 times potential revenue. That’s an awfully high multiple for a “maybe.” Investors really are paying for the big name. Value shoppers may prefer other options.
2) EDITAS ($EDIT)
Editas could be the value play that investors are looking for. If CRISPR Therapeutics is in good shape with two therapeutic areas advancing rapidly, then Editas is in better shape with three specialties. Like their rival, Editas is advancing programs for genetic blood diseases and also pioneering new approaches to cancer. These are what Editas has termed “Ex-Vivo” therapies. In other words, gene editing is used in the lab to create medicines that will be introduced to the human body.
What differentiates Editas from CRISPR Therapeutics is it’s ocular disease program. Editas is aiming to cure a series or rare, but tragic, genetic abnormalities that have caused incurable blindness up until now. This line of research is termed “En Vivo,” in other words, Editas is using gene therapy to make edits directly within the genome of living human beings. The idea is to fix the broken DNA that causes genetic blindness.
In order to advance this three pronged portfolio, $EDIT is leveraging a more broad range of CRISPR Technology. While CRISPR Therapeutics focuses mostly on a kind of CRISPR known as Cas9, EDITAS uses both Cas9, and an alternative approach known as Cas12A. The science related to CRISPR is so new that it’s still not fully settled who owns what, and who owes what to whom. By diversifying their scientific approach, Editas Management feels that they are limiting risk for shareholders.
Three recent developments bolster the investment case for Editas. The first is new leadership. The chairman of Editas, James C Mullen, recently took over day to day leadership as the CEO. Mullin has a long track record of elevating non-profitable, pioneering ventures into the big leagues of biotech money makers. As he is transitioning from Chairman to CEO, he is no stranger to the challenges and opportunities that face the young company. This is a highly accomplished, experienced biotech executive who got a taste of Editas, and wanted more. That’s a good sign.
The second event that bodes well is that the company recently had no trouble at all bolstering its cash stockpile. In early 2021 EDITAS raised an extra $250 Million to bring it’s warchest to $750,000,000. The company burned $179 Million in cash in 2020, so as of the publication of this post Mullen and his team could focus on development of the platform for at least four years without having to worry about running out of cash.
Despite all of this good news, the share price has also lost steam lately. The shares have sunk by 40% since December, 2020. This leaves the company with a market capitalization of $3.2 Billion.
Editas has three areas of advancing research while CRISPR only has two. Editas uses two different gene editing technologies, while CRISPR has bet everything on just one tool. Both companies have rock solid funding in place and respected leadership and founders (famous biologist George Church is an Editas founder). But CRISPR Therapeutics has the brand name and the hard to forget stock ticker. $CRSP has a market cap almost three times that of $EDIT, even though EDITAS seems to offer more to investors. This shows us the power of branding. If you are a Costco shopper, someone who values quality and low price over brand, EDITAS may be a good investment for you.
3) BLUEBIRD BIO ($BLUE)
If you have a taste for value, and a strong tolerance for risk, then you might be an ideal shareholder for Bluebird Bio. Bluebird shares have traded as high as $200, but today trade for just $29. Although the company is pursuing the same basic science as CRISPR and Editas, it’s history is unique, and management has recently decided on a bold plan that could set it apart from its competitors.
Bluebird went public all the way back in 2013, in the earliest days of the gene editing wave. As an early leader in the space, the company benefited from a lot of hype that caused shares to octuple soon after it’s IPO. Bluebird’s bold plan to “recode the story” captured the media’s imagination, and soon the shares were sizzling hot.
Although the company has made steady progress since those early days, the shares have gone from sizzling hot, to not. The company has confronted a series of setbacks and disappointments, from problems with manufacturing quality, to delays caused by Covid, to, most lately, a cancer scare.
These trials and tribulations have scared away all but the most hearty of shareholders. The media hype machine that initially caused shares to skyrocket has now been just as brutal in pushing the shares to punishing lows. While the company has been hit with real challenges, many veteran biotech investors would consider this par for this course for any company that dares to pioneer all new science. If it seems like altering the very source code of life has turned out to be difficult, that is because it is. And yet Bluebird continues to make progress. They have at least six programs that are in advanced testing, and they actually have one drug, Zynteglo, which is approved in Europe.
The launch of Zynteglo has been delayed due to Covid. However prior to Covid, the drug was approved at a price of 1.575 million Euros ($1.867 million), the second most expensive drug of all time. The gene therapy would represent a cure for a rare blood condition called Beta-Thalassemia; a disease which currently requires life long blood transfusions and typically burdons patients with poor health outcomes.
The drug was to be billed in installments of 315,000 Euros, with payment only required if the gene treatment kept working. This entire “pay for performance” structure is a revolutionary arrangement in the world of medicines, and represented a huge milestone for Bluebird. (As many have noted, wrestling high payment from the European Union’s socialized medical systems is far from easy). Whenever Covid ends, there is no reason to believe that Zynteglo can’t be a success.
Bluebird will have to be one tough little creature to fight through the natural roadblocks to innovation. However, $BLUE may well have the resources to persevere. Despite everything, the company still has $1,200,000,000 in cash on the books, and no debt.
Bluebird also has a plan. It was recently announced that the company will split into two. One new company will specialize in rare diseases (such as Beta Thalassemia and Sickle Cell) and another company will specialize in using gene editing to create cancer treatments. The company’s current CEO will become the CEO of the cancer focused entity.
This approach is actually the opposite of what rivals CRISPR and Editas are doing. There is no doubt that $BLUE’s currently anemic share price is playing a role in this decision. If the two units split apart at roughly equal values, then the cancer company will be born with just a $1Billion valuation. I say just because many of it’s cancer rivals with pipelines in similar states of development trade for $4, $5, or even $6 billion. A lot of veteran biotech observers would guess that the company’s well publicized setbacks in the rare disease field have overshadowed the true clinical and financial opportunity on the oncology side. Investors who buy now may well be getting a BOGO deal on the most important biotechnology of the 21st century.
Gene editing technology is exciting, controversial, and real. The most important accomplishment of the three companies is to demonstrate with verifiable clinical results that we can make real changes to the human body simply by changing our genetic blueprints. We can go from treating symptoms to treating causes.
CRISPR, Editas and Bluebird took a technology that seemed like science fiction and proved that it’s very real, and here to stay. The bold investor with staying power may just be able to score a deal on these shares today.
The Sick Economist Owns Shares in $EDIT and $BLUE