Down 21% this year, is CRISPR Therapeutics stock still a buy?

CRISPR Therapeutics‘ (CRSP -0.56%) the stock may be down 21% this year so far, but that doesn’t mean you should write them off as a potential investment. The innovative developer of gene therapies is making progress. And its pipeline implies plenty of opportunity for the stock to grow in the coming years, especially if its cardiovascular and oncology programs play out.

Investing in biotech companies isn’t for the faint of heart, however, and even a slightly less risky competitor like CRISPR Therapeutics could have some pitfalls. Let’s take a look at where this biotech is headed and whether it might be a good fit for your portfolio this year.

This revenue growth will be dizzyingly fast

In the short term, there is a very clear path for this company to massively increase the size of its top line, and the medium term also offers a high probability of earnings growth. Here’s why.

CRISPR Therapeutics’ first therapy is called Casgevy. It treats sickle cell disease (SCD) and beta thalassemia, both rare inherited diseases that affect the function of a person’s red blood cells. It has been approved for less than a year in the US and EU

Casgevy is a bit complicated to manufacture and administer, so it can only be supplied through Authorized Treatment Centers (ATCs). Establishing those centers takes time, and treatment sales will have a hard ceiling until they are widely distributed. CRISPR Therapeutics’ lead collaborator on Casgevy, Vertex Pharmaceuticalshandles setting ATCs for now.

Management estimates that more than 166,000 people worldwide could ultimately benefit from being treated with Casgevy; this assumes that the two companies can improve certain aspects of the treatment process that require time and resources, such as the pre-treatment chemical conditioning regimen that patients must undergo. As of mid-July, only 20 patients have started the treatment process, so the target market is still effectively untouched. That will change in the next few years.

According to Wall Street analysts’ consensus estimates, CRISPR Therapeutics is expected to bring in nearly $50 million in revenue this year, with just over $288 million in revenue slated for the next fiscal year. But that’s considering only the immediately accessible patient population and the impact of implementing more ATCs. A program to effectively increase the size of the addressable market through research and development (R&D) on the conditioning regimen is still in early preclinical testing; assuming it is finished, it could take several years to complete.

During this period, there will be more and more patient coverage through local ATCs and the top line will grow even more. And that’s before including the positive impact of any other programs that are commercialized or advancing into late-stage clinical trials.

One of these programs is a clinical-stage gene editing candidate for atherosclerotic cardiovascular disease (ASCVD) with elevated lipoprotein(a). It could have an addressable market of up to 25% of the global population if the treatment could be used to reduce cardiac risks before symptomatic disease occurs. Others, such as its four clinical-stage cell therapy programs to treat various types of cancer, could also be quite profitable despite targeting significantly smaller markets.

And the company has about $2 billion in cash, cash equivalents and short-term investments on hand as of the second quarter. So even if Casgevy’s acceleration takes longer than anticipated to start producing earnings, shareholders won’t be at risk of diluting their holdings by issuing new shares, which is a plus.

Discovering the longer-term positive will take some time

As a biotech stock, CRISPR Therapeutics will continue to face some risks in the years ahead. Depending on your tolerance, these may be enough to disqualify it as an investment.

For example, it could disappoint the market if it takes longer than anticipated to generate profits from Casgevy. That probably wouldn’t require the company to scale back its ambitions, but it could drag the stock price down until operational efficiencies can be realized.

Greater risks involve failure in clinical trials, which is inevitable over a sufficiently long period of time. Since CRISPR Therapeutics is already established with a product on the market, its stock price won’t be devastated by an early-stage stumble with a clinical trial, but it’s hard to imagine the market not punishing the stock at least a little. in case of a miss. If you’re a risk-averse investor, and especially if you may need to sell stocks in the next five years or so, this possibility can be a deal-breaker.

For others, however, such an event would be a good opportunity to buy the dip. After all, this biotech has a roadmap to grow its revenue just by setting up new clinics, which is low-risk compared to drug development. Finally, another of its candidates is likely to succeed, marking the start of a second phase of big growth.

So don’t look at a stock’s performance as an indicator of whether it’s worth buying. The more you can think long term, the more attractive CRISPR Therapeutics stock becomes.