On Dec. 8, CRISPR Therapeutics (NASDAQ: CRSP) and its collaboration partner Vertex Pharmaceuticals (NASDAQ: VRTX) made history when the Food and Drug Administration (FDA) gave them the green light to commercialize their gene therapy for sickle cell disease (SCD), which is the first medicine to use the much vaunted CRISPR-Cas9 gene-editing technology. The therapy, called Casgevy, is a functional cure for SCD for most patients, and it’s also the company’s first product to reach the market.
With those two major thresholds cleared, under normal circumstances the stock would be flying. But from Dec. 7, a day before the approval, to Dec. 12, CRISPR’s shares fell by 16%. One of the company’s main competitors, Bluebird Bio, also got its gene therapy for SCD approved on the same day, and its shares are taking an even harsher punishment, falling by 36%. To complicate matters further, shares of Vertex tracked the market’s flat performance in the same period.
So what’s going on?
All the details matter
Before Casgevy, CRISPR Therapeutics had no sources of sales revenue, subsisting on its collaboration revenue and milestone payments. Now, it can start the arduous process of treating patients and capturing reimbursement for the first time, but investors should take care not to expect any quick riches.
In terms of Casgevy’s addressable market, Vertex assumes that there are roughly 32,000 eligible patients with severe sickle cell disease in the U.S. and Europe. The therapy is intended for one-time dosing, and it appears to be a functional cure for roughly 94% of patients. Patients will need to pay roughly $2 million to get treatment, likely with the help of insurance; as high as this price tag may sound, it’s important to note that Bluebird’s therapy will cost more than $3 million, so it could face additional barriers to adoption.
By 2028, Wall Street analysts are anticipating that sales of Casgevy will be somewhere in the ballpark of $1.2 billion annually. That compares quite favorably to CRISPR’s trailing-12-month collaboration revenue of $170 million.
Per the terms of the collaboration agreement, Vertex will pay $200 million to CRISPR Therapeutics as the relevant milestone of regulatory approval is now in the rearview mirror. Vertex will also be registering all of Casgevy’s revenue and related costs on its financial statements, except for further research and development (R&D) expenses, for which it will pay just 60%.
CRISPR will still pick up 40% of the profits or losses, which will be considered part of the cost of goods sold (COGS) expenses paid by Vertex. That profit split somewhat helps to explain the market’s dour reaction to the approval, as the full benefit of the launch won’t accrue to the smaller business.
At the moment, the biotech isn’t profitable, and per the average calculations of Wall Street analysts, CRISPR won’t be profitable within the next two fiscal years. Therefore, investors appear to be offloading their shares in acknowledgement that growth will be fairly slow to arrive even though regulators opted not to attach any additional strings to Casgevy’s approval.
There’s another catalyst on the way
On March 30, 2024, Vertex and CRISPR Therapeutics will hear back from regulators regarding whether Casgevy can be used to treat or cure beta thalassemia, another rare blood disorder. If they get approval, it’ll mark the full success of the first part of their joint vision for the candidate. As Casgevy is already approved for both indications in the U.K. since November, there is a high chance the FDA will give them another thumbs up.
The next part of the roadmap will be to work on expanding the patient populations that are eligible for treatment with the therapy. With a significant amount of additional R&D work over the coming years, management thinks that it might be possible to treat as many as 450,000 patients total. That’d mark a gargantuan expansion of the medicine’s addressable market, and it’d also imply many billions of additional revenue. For now, that large market is a distant dream.
If you’re thinking of buying this stock, be aware that its peculiar behavior after the approval is not a bullish factor. It’s unclear if the market will react to news of the potential future approval for beta thalassemia with similar distaste. And while many people — myself included — had and still have high hopes for this company’s shares to rise, its recent performance is a strong signal that the ongoing risks for investors are significant.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool recommends Bluebird Bio. The Motley Fool has a disclosure policy.
CRISPR Therapeutics Just Made History. So Why Did Its Stock Fall? was originally published by The Motley Fool