Crispr Therapeutics Stock: I’m Not Betting Against Gene Editing This Time (Upgrade) (CRSP)

I downgraded CRISPR Therapeutics AG (NASDAQ:CRSP) stock before the official approval of Casgevy by the US FDA in December 2023. Crispr billed the FDA approval as “historic, not only for biomedicine but for humanity as a whole.” As a result, it has opened up new healthcare opportunities in gene editing as a platform, even though we started with just severe sickle cell disease or SCD.

I articulated in November that the market had already lifted CRSP before the official approval which warranted caution. Accordingly, CRSP fell nearly 30% from its early December 2023 highs toward its recent lows at the $55 level before leveling out. As a result, I consider my November 2023 thesis on CRSP as having played out, as dip buyers returned at the $55 level to capitalize on the significant pullback.

Notwithstanding the caution demonstrated by the market in December, CRSP buyers have returned with a vengeance, as the stock blasted through my previous caution. As a result, investors who picked CRSP’s bottom at the $55 level have gained nearly 65% through this week’s highs, outperforming the S&P 500 (SP500) significantly. What could have driven such fervor in investors recently? Could it also be attributed to rapid short-covering from bearish investors, considering that CRSP’s short interest as a percentage of its float was still almost 20% as of January 2024?

I assessed that recent enthusiasm for CRSP could also have been attributed to the faster-than-expected approval for treating transfusion-dependent beta-thalassemia or TDT. The initial approval was expected in March, but the FDA approved it in January 2024. As a result, it has increased Crispr’s potential revenue growth profile, improving investor sentiment. Given its pipeline, I also assessed that the market has likely gained enthusiasm that Crispr could transform more rapidly into a gene-editing biotechnology platform targeting rare and more common diseases.

Crispr management provided a recent update, presenting insights into its recent developments. Accordingly, management expects significant catalysts over the next 12 to 18 months, “driven by progress in its clinical trials and pipeline expansion efforts.” Consequently, I concluded that buyers are likely assessing a more robust expansion profile into other therapeutic areas, away from more niche and costly treatments like SCD or TDT. These include areas in oncology, cardiovascular diseases, and Type 1 diabetes. In addition, the recent $280M financing round has solidified Crispr’s balance sheet, allowing CRSP to accelerate its “auto-immune and in vivo gene editing programs.” Therefore, it does seem like Crispr’s thesis is leaning increasingly bullish, requiring me to revisit my medium-term directional bias.

Consider this. There’s no doubt that CRSP is valued at a premium against its healthcare peers, assigned a “D+” valuation grade. However, I believe the market has assessed an increasing possibility of CRSP fulfilling its best-in-class “A+” growth grade, given the recent successes in approvals.

Crispr believes in the global opportunity of its platform, as we saw in the recent EU approvals as well. Although the company is not expected to report full-year adjusted EPS profitability till FY26, the timeline is getting closer. Hence, I believe the next 12 to 18 months will likely drive significant potential upside in CRSP if the positive catalysts work out as anticipated by management.

Bolstered by CRSP’s solid “A-” momentum grade, buying pressure on the stock remains constructive, providing investors with opportunities to buy significant dips.

With CRSP surging toward its February highs at the $90 level, I assessed the possibility of a short-term top, providing dip buyers the opportunity to take profits, given its outperformance.

However, I’m much less bearish this time, assessing a steep pullback as an opportunity to get on board rather than trying to avoid catching the falling knife.

As a result, I encourage investors looking to capitalize on CRSP’s subsequent pullback to get their dry powder ready.

Rating: Upgrade to Hold.

Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Please always apply independent thinking and note that the rating is not intended to time a specific entry/exit at the point of writing unless otherwise specified.

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