The Viability of Gene-Therapy Investing

The Viability of Gene-Therapy Investing

Financial Markets
May 27, 2018

The pharmaceutical industry in some ways can be seen as rather cyclical. New diseases are discovered, new cures are discovered, the cures are patented, the drugs are sold, the profits go up, the patents expire, the generics come forth, the profits die down. The cycle has its share of variables ranging from clinical trials, to lawsuits, price hikes, M&A, taxes, healthcare reform, and new discovery and research. The biggest factor that influences the pharmaceutical industry - rightfully so - is discovery.

When a new product is discovered - be it cure, vaccine, or therapy - it not only brings with it new revenues, but also earns a tip of the hat from the public. Sometimes the market finds itself in a place where patents are seldom issued, but rather protected, and it would seem that growth and innovation slows down. Many pharmaceutical companies worry a lot more about protecting their existing products than coming up with new therapies and drugs to issue. After all, coming up with a revolutionary medicine is extremely difficult - and even more so expensive. One sector of biotechnology and pharmaceuticals that still remains virtually untapped (profit-wise) is gene therapy. In 2018 it appears that in the midst of a slow start to the US Market, many are turning to betting on the success of individual stocks, in hope of balancing their portfolios with a couple of "pharma story stocks".

CRISPR Therapeutics (NASDAQ: $CRSP)

Enter the latest stock to catch the attention of many investors. Arguably, many investors view CRISPR's story to have already reached its zenith, but many more view it as a valuable stock to own for decades to come.

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CRISPR Therapeutics normalised returns compared to SPY.[/caption]

Looking at the YTD returns, CRSP has already yielded a staggering return of 198%. However, this isn't some penny stock being pushed around by institutional volume, the shares are currently price at $69.94, and they trade on the Nasdaq.

CRISPR Therapeutics is biotech company focused on the development of transformative medicines using its proprietary CRISPR/Cas9 gene-editing platform. In short, the aim to edit DNA with immuno-oncological implications that could affect the treatment of cancers, sickle-cell disease, and blood diseases.

The company has amassed a following from notable institutional investors including BlackRock and Credit Suisse.

Problems in Gene-Therapy Biotech

At the end of the day listing on a public exchange and committing to financing through equity is just a form of financing. Rather than issuing debt-securities that must be planned, or undertaking massive amounts of private debt, many gene-therapy researchers take their companies public to stand a chance at funding their research.

NASDAQ: Vericel ($VCEL), Compugen ($CGEN), Adverum Biotechnologies ($ADVM), Arqule ($ARQL), Aevi Genomic Medicine ($GNMX) - have all posted solid gains for shareholders, with none of the companies showing positive earnings.

Denali Therapeutic ($DNLI) hasn't lived up to it's expectations so far either (originally presented here).

Despite countless gene-therapy clinical trial announcements, it would appear that it's going to take some time before any solid earnings growth in seen. Picking individual winners remaining a major obstacle as who knows which of these companies will thrive and which will go belly-up. For those interested in the exposure to genome biotech companies could consider an ETF. $PBE; PowerShares Dynamic Biotechnology & Genome Portfolio, and $ARKG; ARK Genomic Revolution Multi-Sector ETF - are both exposed to the sector.

Where does the leave CRISPR Therapeutics

The CRISPR-Cas9  platform has become popular in attempting to edit DNA, and experiments have shown success to some extent on altering genetic defects in animals (source). CRISPR Therapeutics has the potential to apply it's technology the genetic engineering of agricultural products and not remain limited to medical use. Ultimately, it will be very important for the company to turn cashflow positive in order to please investors and sustain their ongoing research. The company remains on track to purse clinical trials for a variety of therapeutic products, however it is difficult to gauge what will be the result of these trials.

Investors should be relieved to know that CRISPR is not alone in their pursuits and research.

Though CRSP’s potential therapies are still in the developmental stages and the company has yet to turn a profit, promising results in animal trials and joint ventures with Vertex Pharmaceuticals (VRTX) and Casebia Therapeutics have analysts turning more bullish on the potential of these technologies to one day turn into potential blockbuster drugs.  (Link to full article)

While to many CRISPR Therapeutics is still a long shot stock the company remains very diligent in it's research and cooperation with Vertex Pharmateceuticals. Many analysts build the case that strong management has greatly influence the investor sentiment towards the company.

As for now, the results of the clinical trials - and mainly time - will tell whether CRISPR continues to stand out from the pack of Nasdaq Gene Therapy companies, or simply fade into the crowd.