The CRISPR Craze! Three Ways to Play in This Latest Biotech Innovation

CRISPR is a gene-editing technology that could help mankind eradicate some of the worst genetic diseases. The technology has only been around for approximately five years, it was discovered as a result of the work of Dr. Jennifer Doudna at the University of California-Berkeley and Emmanuelle Charpentier of Umea University of Sweden. The duo discovered the CRISPR-Cas9 genome editing technique and it is a major breakthrough for the biotech industry.

Progress in the industry was held up a little as there were two entities laying claim to the patent rights, the Broad Institute of Harvard and MIT was on one side and UC Berkeley was on the other side. Berkeley filed its patent first in 2012, but Broad paid to have its patent review process expedited. This caused Berkeley to initiate a charge of patent interference. The U.S. Patent and Trademark Office issued a decision in February that said “that there is no interference-in-fact”. The decision allows Broad to keep the CRISPR-related patents they had filed. Berkeley’s patent is now being reviewed as it had been held up by the interference claim.

Rarely do you have both parties claiming victory in a case like this, but Broad was obviously happy with the decision and the group from Berkeley wasn’t upset as they still have their patent awaiting approval. What is clear is that the industry can move forward with some incredible technology to come.


How Can Investors Take Advantage of CRISPR?

Investing in biotech stocks is a different process than other industries. Using traditional fundamental analysis tools is almost useless as many of the smaller companies don’t have sales and therefore have negative profit margins, don’t have a return on equity, etc. Investing in small biotech firms is based more on potential sales. Most of the companies that are involved in CRISPR directly are small-cap biotech firms. Companies like Editas Medicine (Nasdaq: EDIT), Intellia Therapeutics, Inc. (Nasdaq: NTLA), CRISPR Therapeutics (NASDAQ:CRSP) and Audentes Therapeutics (NASDAQ:BOLD) are all heavily involved in CRISPR technology. However, there are also bigger firms with interests in the technology and that provides investors with alternatives to investing in small biotech firms.

Of the four stocks mentioned above, I like Intellia Therapeutics as the best investment. The company is one of the few with sales at this time and they are growing their sales. In the last three years, sales for NTLA have grown by an average of 232 percent annually, including 41 percent in the most recent quarter.

The company went public in May ’16 and immediately jumped over 68 percent before it pulled back. Over the last year, the stock seems to have found solid support in the $11-$12 range.

Intellia is based in Cambridge, Massachusetts and has partnered with the likes of Novartis and Regeneron. The company develops in vivo programs focused on liver diseases including the hepatitis B virus and transthyretin amyloidosis.


Secondary Impact Investment

Another company that could benefit greatly from the CRISPR technology is Juno Therapeutics, Inc. (Nasdaq: JUNO). Juno is a biopharmaceutical company headquartered in Seattle. The company develops cell-based cancer immunotherapies based on its chimeric antigen receptor and T cell receptor technologies to genetically engineer T cells to recognize and kill cancer cells. It has also partnered with Editas to work on CRISPR technologies in the fight against cancer.

Juno has been around longer than most of the companies listed above that are almost entirely focused on CRISPR technology and it has other revenue streams outside of the industry. In fact, Juno has seen its sales grow at an annual rate of 207 percent over the last three years. Like most newer biotech companies, Juno hasn’t reached profitability yet, but it does appear as though it is headed in the right direction and will reach profitability before the other companies that are banking on CRISPR technology.

We see on the weekly chart that the company was brought public in December ’14. The stock rose for a few months, but then entered a downward phase. That downward phase appears to have ended in December ’16. The stock has been climbing since the beginning of the year and it has moved back above its 52-week moving average and its 13-week moving average has recently made a bullish crossover of the 52-week. This positive momentum could continue for some time as there is negative sentiment toward the stock as evidenced by a short interest ratio of 9.97. This means that there are almost ten days of average trading volume sold short. Should those short sellers have to start covering their positions, it will add buying pressure to the stock.


A Well Known Drug Company With An Interest In CRISPR

The potential uses for CRISPR and the possible profits to be had from the technology have garnered the attention of a number of established pharmaceutical and biotech firms. Companies like Amgen Inc. (Nasdaq: AMGN), Celgene Corp. (Nasdaq: CELG), Novartis ADR (NYSE: NVS) and Regeneron Pharmaceuticals Inc. (Nasdaq: REGN) all have a stake in CRISPR technology. However, it is another drug maker that I like better.

GlaxoSmithKline (NYSE: GSK) is a UK based drug manufacturer that has been around since 1715. In addition to its own products, Glaxo has a working relationship with Editas Medicine and it has made an investment in CRISPR Therapeutics which seems to cover several possible developments from the technology. This gives Glaxo several ways to potentially profit as the technology grows and different uses are discovered.

Glaxo has pretty solid numbers of its own even without the potential growth from CRISPR. The company sports a return on equity of 54 percent presently, an operating margin of 20 percent and a profit margin of 27 percent. Analysts expect the company to grow at a rate of 12 percent per year over the next five years.

Glaxo has been trending higher over the last couple of years and a trend channel has formed that have defined the upward trend. The stock has pulled back in recent months, but looks to be providing a buying opportunity as the stock is close to the bottom rail of the channel. We also see that the weekly stochastic readings are making bullish crossover at this time and we see that the last time this happened, the stock rose approximately 20 percent in the next six months. The company also pays a dividend of around five percent.


A Mixed Approach May Be Best

The potential growth in CRISPR technology is tremendous, both in terms of profits and uses. It might take some time before companies like Editas Medicine, Intellia Therapeutics, Inc. and CRISPR Therapeutics are profitable, so a mixed approach to investing in the technology might be the best. Mixing stocks like Intellia, Juno Therapeutics and GlaxoSmithKline into your portfolio gives you exposure to the growth and it gives you diversification as well as some safety by investing in older companies.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

Leave a Reply

Your email address will not be published. Required fields are marked *