CRISPR Therapeutics Has $2.4 Billion in Cash and an Approved Drug. Why Is Its Stock Trading Nearly 40% Below the Wall Street Consensus?

By all accounts, CRISPR Therapeutics (NASDAQ: CRSP) shares should be soaring. The company shares rights to one of the healthcare industry's very few approved gene-editing therapies, and has several more in the works.

Initial interest in its sole approved treatment is solid, too. Despite a steep price tag of $2.2 million per patient, over 500 people have at least begun using its single marketed therapy, one that was only approved in late 2023. And the debt-light $5.5 billion company has over $2.4 billion worth of liquidity, while analysts' consensus price target of $80.62 is 40% above the stock's current price.

Yet shares of the biopharma are seemingly stuck, unable to make any progress since 2022, even though its story has become so much more compelling during this time frame. What gives? Nothing that's really all that surprising, all things considered. And the stock's stagnation isn't a reason not to take a swing on it sooner rather than later.

But first things first. What exactly does this company do?

What is CRISPR Therapeutics?

CRISPR Therapeutics is obviously a biopharma name -- but it's a unique one. Co-founder Emmanuelle Charpentier and her research collaborator Jennifer Doudna co-invented the CRISPR/Cas9 gene-editing technique. It not only became the scientific basis for the company's drugs, but also won the pair a Nobel Prize in Chemistry in 2020.

But what is "CRISPR?" It's an acronym for "clustered regularly interspaced short palindromic repeats" -- a pattern observed within the antiviral DNA of small organisms like bacteria. Cas9 is an enzyme that splices a DNA chain in a very specific spot identified by guide RNA, allowing a damaged or faulty sequence to be replaced with a corrected sequence created by CRISPR technology.

Its potential uses are considerable, although CRISPR Therapeutics got the ball rolling with a relatively modest one. Its gene-editing therapy Casgevy, approved in 2023, is aimed at the inherited blood disorders sickle cell disease and beta thalassemia.

Bigger and better targets are in the works, though. The company's clinical pipeline includes trials of the same gene-editing approach to treat cardiovascular disease and diabetes, while ailments like cystic fibrosis, muscular dystrophy, and hypertension are longer-term prospects currently in preclinical studies.

Why investors are remaining on the sidelines

Sounds good. So why isn't the stock moving? There are a handful of factors working against it here. One of them is the price tag of the treatment: At $2.2 million a pop, insurers are obviously requiring a considerable amount of justification.

Another stumbling block is the sheer complexity of the treatment process, which is slowing revenue reporting. Casgevy isn't a simple injection that's mass-manufactured; it's customized for each patient using a sample of their own blood stem cells, and can take months from start to finish. CRISPR Therapeutics doesn't get to book any patient revenue until the end of the treatment process.

Image source: Getty Images.

Investors may also be disappointed in what seem like agonizingly poor results and sizable losses right now and for the foreseeable future. Although next year's projected revenue of $151.7 million is a marked improvement over this year's likely top line of $44 million, that's still weak for a $5.5 billion company that developed a breakthrough treatment, with more game-changing drugs in the works.

Another factor is Vertex Pharmaceuticals (NASDAQ: VRTX), its partner in the Casgevy business. (Vertex has 60% of the partnership, compared to its own 40%.) CRISPR Therapeutics needs Vertex's sample-collection and treatment centers. The two companies are splitting profits and losses on the drug, though, and like most young drugs, this one remains unprofitable to start. Although Vertex has other revenue-bearing and profitable products in its portfolio, CRISPR Therapeutics doesn't -- at least, not yet.

Then there's the recent fundraiser, which may not be the last one for a while. In March, CRISPR Therapeutics issued $600 million in notes that could be converted into over 7.8 million shares of stock, potentially diluting the 96.5 million shares currently outstanding. This paper essentially acts like debt in the meantime, requiring the company to make semi-annual interest payments.

This is the norm for up-and-coming biopharma companies

That's a lot of stumbling blocks -- paired with a pipeline that's promising, but far from guaranteed to produce a bunch of approved drugs in the near or distant future. It's not difficult to see why interested investors are balking.

The thing is, there's nothing particularly unusual about any of this for an up-and-coming biopharma name. They all tend to suffer losses early on, so they all need to regularly raise new capital. No start-up pharma outfit can guarantee that every clinical trial will turn into an approved, marketable drug. Neither can the biggest names in the pharmaceutical business.

So there's risk here, to be sure, but it's commensurate with the potential reward. Mordor Intelligence expects the nascent gene-editing therapy market to grow at an average annual pace of 16% through 2031, when it will be worth nearly $26 billion per year (although this outlook arguably still understates the potential of gene-editing treatments).

The bottom line? If you can stomach the above-average risk and stick with it for a while, there's meaningful upside here. As a 12-month target, the consensus analyst price target of $80.62 is just the beginning. While the company and the stock make forward progress, look for this bullishness to grow. The tough part is just waiting for something -- or someone -- to get the ball rolling in the meantime. It seems like most investors are waiting on the sidelines for a clear catalyst.

Of course, all too often, waiting for such a catalyst means you'll miss out on some sizable early gains.

With all that said, given the strength of its intellectual property and pipeline, there's also an argument to be made that CRISPR Therapeutics is a candidate for acquisition by a bigger player, one with deeper developmental pockets and more marketing firepower. But that's still not enough reason to step into this stock.

James Brumley 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 has a disclosure policy.