CRISPR Therapeutics (CRSP -0.92%) was a standout in the market last month as its shares charged 34% higher, according to data provided by S&P Global Market Intelligence. The biotech stock sustained its momentum from prior months with a strong quarterly report and encouraging news from regulators.
CRISPR keeps the good news rolling
There wasn’t any transformative news out of CRISPR Therapeutics last month. Instead, the company sustained the excitement generated by important regulatory approvals over the past few months. A string of modestly positive news items kept the stock ticking steadily higher throughout February.
Mid-month, CRISPR announced that it had received clearance from the European Commission for its first product, Casgevy, as a treatment for sickle cell disease and transfusion-dependent beta-thalassemia. This was a significant positive development, but investors had largely taken it for granted in the wake of approvals by the U.K.’s health regulator and the U.S. Food and Drug Administration. It was a major win, but given its high likelihood, it should have been reflected in the company’s valuation already.
CRISPR also reported better-than-expected quarterly results, which is usually good for share prices. The biotech doesn’t have any revenue from product sales yet, so its quarterly financial figures are generally less consequential than news on the R&D, clinical trial, or regulatory fronts. Still, it was encouraging that the company burned less cash than anticipated and kept expenses under control. Management provided generally positive updates on its pipeline candidates, several of which are in clinical trials. The team also indicated that Casgevy is progressing through the approval process in additional key markets. Investors would have expected that, but confirmation that matters are proceeding according to plan is always a good thing.
Given the preexisting positivity around the stock, the month’s news was enough to keep it moving higher.
Promise and speculation
The regulatory approvals for its first commercial product have significantly reduced execution risk for CRISPR Therapeutics. The stock’s returns in recent months are warranted. That said, the company will still have to overcome some hurdles before it can start producing revenue from product sales. Even more challenges stand between it and cash-flow-positive status. That all creates uncertainty, and makes it difficult for investors to value the stock based on fundamentals.
For now, investors are hyped up about CRISPR’s prospects. The company announced a $280 million direct offering of common stock last month, meaning that institutional investors will be purchasing nearly 4 million newly issued shares. A new issuance should have a neutral impact on stock price, assuming that it’s priced appropriately. The stock’s steady climb suggests that investors are confident that the new cash raised will deliver returns.
Without cash flows or product sales to support its valuation, CRISPR remains a speculative investment, and it could be highly volatile. However, the disruptive qualities of Casgevy and the products in its pipeline give the company the potential to deliver major returns to investors who are willing to take the risk.
