CRISPR Therapeutics AG

Moat: 2/5

Understandability: 4/5

Balance Sheet Health: 4/5

CRISPR Therapeutics is a gene-editing biotechnology company focused on developing transformative gene-based medicines for serious diseases, with particular emphasis on their novel CRISPR/Cas9 technology.

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The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

CRISPR Therapeutics is a leading gene-editing company, primarily focused on the development of therapeutics based on its proprietary CRISPR/Cas9 technology. The company’s revenue streams are largely dependent on collaboration and license agreements, which are often milestone-based, meaning that recognition of income is not fully guaranteed, and the clinical and regulatory progress of their drug candidates.

Revenue Distribution:

CRSP does not generate substantial product sales revenues at this moment. The vast majority of its revenue is comprised of collaboration revenues and milestone payments. These are primarily from collaboration agreements with companies like Vertex Pharmaceuticals.

Recent Trends in the Industry

The gene-editing space is seeing increased regulatory attention (FDA, EMA), which is increasing the hurdles faced by companies seeking approval and commercialization.
There has been increased collaboration between biotech companies and larger pharma, as well as a surge in venture capital investments in gene editing companies, as a large number of companies and technologies compete in this field.
Technology advancement is rapid in this area, including improved methods to target and manipulate genes, and the clinical progress of new therapies.
There is an increased focus on platform technologies (like CRISPR/Cas9) rather than just individual products, to be able to apply the technology to a diverse range of diseases.
Many of the newer treatments are for rare diseases, as treatments for diseases with bigger addressable populations are more competitive.

Competitive Landscape:

The competitive landscape is characterized by many companies working on gene-editing or related technology. Key competitors include Editas Medicine, Intellia Therapeutics, Sangamo Therapeutics, and Beam Therapeutics, among others. Competition exists for collaborators, research funding, talent, and ultimately market share of therapies.

What Makes CRSP Different: * CRISPR Therapeutics’ core technology is the CRISPR/Cas9 system, which enables the precise editing of specific sections of DNA. * They have a broad range of applications under development, including gene editing of human blood cells (ex vivo), as well as in vivo applications with the aim of curing diseases within the human body. * CRSP emphasizes its focus on treating and eventually curing severe genetic disorders with curative and durable medicines.

Moat Analysis (2 / 5):

Intangible Assets
- CRISPR Therapeutics’ primary moat lies within its intellectual property, particularly its licenses, proprietary technologies, and trade secrets around the CRISPR/Cas9 platform.
  - It’s important to note, that the use of CRSPR has wide academic use. There are a handful of companies who have proprietary technologies built on CRSPR.
  - The patent landscape is still evolving, creating significant uncertainty and is being contested between the various parties. Given the fast moving nature of the field, the longevity of current IP in protecting the technology is limited.
- While the technology is innovative, its sustainability as a moat is subject to litigation, regulatory hurdles, and the ability of competitor companies to come up with similar or better solutions.
Switching Costs The therapies being developed by CRISPR are highly specialized and usually target rare genetic conditions. These are not repeat purchases (e.g., a single treatment may be needed for a patient), and as such there is very little/no switching cost present for companies, but there may be some lock-in for patients, but the market is not large enough to create any moat.
Network Effects There are no substantial or significant network effects that can be enjoyed by CRSP’s business model, as in the case of, for example, a social network.
Cost Advantage The production process for gene-editing therapies involves considerable costs and they are still very much in a development stage. There are no clear indications that they have cost advantages.

Overall the moat is pretty weak, as patents are being heavily scrutinized and often challenged. Moreover, as it is a new technology it may still be surpassed. There are no real barriers to entry in the space as it is easy to reproduce the method. It would be highly likely that competitors would come up with a similar or more advanced technology quickly, therefore creating a very weak moat.

Risks to the Moat and Business Resilience:

Patent and Intellectual Property Risks: The core technology is covered by various patents, and there’s always an ongoing risk of litigation/challenge of existing or newly issued patents and loss of intellectual property, and regulatory exclusivity and freedom to operate which is crucial in the gene editing field.
Clinical and Regulatory Risks: Clinical trials are uncertain and can face setbacks. Regulatory approvals, are complicated, and new regulations may alter the company’s economics.
Competition: Many companies and research centers are developing different gene therapies. There is an intense competition for funding, research talent, collaborators and potential market share. New and disruptive technologies in the area may create obsolescence.
Manufacturing Complexity and Scale: The manufacturing processes for gene-editing therapies are very complex, which could lead to production difficulties. As there is no high volume manufacturing in the current setting, achieving scale to bring these treatments to the market is another significant challenge and risk.
Financial Risks: Heavy investments in research and development, clinical trials, and manufacturing, place significant financial strains on a company that has yet to achieve commercial scale. Moreover, the reliance on collaboration and milestone payments brings its own set of financial risks.
Adverse events: Although companies like CRSP have been very successful in delivering promising clinical results, gene editing technologies come with a risk of adverse events.

Financial Analysis:

Revenue & Profitability: CRISPR’s revenue is mainly driven by collaboration and licensing arrangements. It doesn’t have sustainable and consistent sales of commercial products yet. They have significant accumulated losses from investing heavily in R&D.
In Q3 2023, total revenue was 248.2 million USD, compared to 161.2 in Q3 2022. R&D expenses were at 195 million USD, which was 85% of the total revenue.
Liquidity and Capital Resources: The company has sufficient liquidity at this moment. At the end of 2023 they held over 1.7B USD in cash and marketable securities, which is enough to continue with their research and development activities for quite some time. They have a low debt/equity ratio, implying low financial distress risk for the near future. However, it does increase their risk of relying on third parties for their growth.
They issued 2.2 million in shares in Q3 2023 and received about 149 million USD in cash. They intend to pay a higher price for the same shares to an underwriter.
Cash Flow: Net cash provided by operating activities was negative ($117.3M) for the nine months ended in 2023, but net cash provided by financing activities was $315.6M. Free Cash Flow is heavily negative at this time.
Solvency: Debt is mostly from operating leases and capital lease obligations. The ratio of total liabilities to total assets is around 25%, demonstrating a low risk of solvency problems in the near future.
Cash burn and spending: They spend considerable amount of cash on R&D. If those R&D spendings fail, the company will need to raise even more capital, which can put downward pressure on the stock if those dilutions become too frequent.

Recent Management Comments:

Management has been focusing on enhancing manufacturing capabilities and infrastructure to prepare for potential commercial launches.
Management’s communication points that the company is focusing more on delivering on collaborations and clinical trial programs.
Management has given guidance that the number of patients receiving treatment in the coming quarter is expected to increase. This hints towards more stability on the revenue end, and reduced uncertainty in those areas.
Management has expressed that there are no immediate risks to the collaboration and license agreements.
Management is trying to focus more on the value of their technology instead of just the growth and scale, which may increase long term value.
There has been a lack of clarity in terms of the commercial pipeline for the business, this puts some risk into their long-term projections, and it has been a consistent problem over the past years.

Understandability (4 / 5):

CRISPR Therapeutics is moderately complex to understand. The technology is complex, but the business strategy is easier to understand: to find and develop proprietary medicines in the gene editing space with a focus on curing genetic diseases. Most investors have some idea about how a drug is approved and commercialized, however, what is less clear, is how their specific type of technology works. There is a lack of clarity for the timeline for commercialization which reduces understandability slightly.

Balance Sheet Health (4 / 5):

CRISPR Therapeutics has an adequate balance sheet and sufficient cash for a couple of years for operations. There are manageable debts and adequate financial resources, though the dependence on collaboration revenues presents some risk and uncertainty.

Key Takeaways:

CRISPR therapeutics has a weak moat, but it is highly valuable if its technology becomes ubiquitous. The lack of clarity and strong IP protection creates a higher hurdle for it to become sustainable in the long term.
The reliance on collaborations and R&D funding poses financial uncertainties. The lack of commercialized products makes it hard to predict its near-term financial success.
The company has a solid balance sheet at this moment, which provides it time to execute its vision.