CRISPR Therapeutics (NASDAQ: CRSP) is heading for an important moment: the potential approval of its first product, exa-cel to treat blood disorders. That’s a good reason to buy the stock now and benefit down the road.
And this week, the company announced news that adds to the buy case for CRISPR: Big biotech Vertex Pharmaceuticals (NASDAQ: VRTX) has signed a licensing agreement that gives it access to CRISPR’s gene editing technology for its type 1 diabetes (T1D) program. The companies aren’t strangers to each other. In fact, they’re developing exa-cel together.
Let’s find out why the new agreement is such great news for CRISPR.
The CRISPR/Cas9 technique
First, let’s talk a little bit about CRISPR’s technology. The company specializes in gene editing, using the CRISPR/Cas9 technique. This involves cutting DNA at a specific point, then letting a natural repair process happen. The idea is to fix faulty genes involved in disease.
In T1D, the body destroys islet cells that normally would control blood sugar levels. Vertex is working to produce stem cell-derived islet cells to replace those destroyed cells. By using CRISPR’s technology, Vertex aims to create “hypoimmune” cell therapies, or ones the body’s immune system won’t reject.
The hypoimmune program is in preclinical development right now. Vertex has advanced two other T1D candidates — also stem cell-derived cell replacement therapies — into phase 1/2 trials.
Vertex already has made significant progress with its technique. If CRISPR’s technology accelerates the development of and improves the performance of Vertex’s candidates, this could be big — for both companies.
Now, let’s get to the terms of the deal. Vertex pays CRISPR $100 million up front. In addition, CRISPR is eligible for as much as $230 million in research and development milestone payments. Finally, if Vertex launches a T1D product using CRISPR’s technology, CRISPR will benefit from royalties.
CRISPR doesn’t yet have product revenue. But last year, the company reported collaboration revenue of $436 million. So this deal with Vertex offers CRISPR a significant boost — in the near term and over time if the T1D program advances smoothly. And if Vertex launches a product, we’re looking at recurrent revenue for CRISPR thanks to royalty payments.
Additional collaboration revenue
All of this is great news for the biotech company for two reasons. First, it represents additional collaboration revenue and possible product revenue down the road. Second, it shows the strength of CRISPR’s technology. That’s a good sign for CRISPR’s own pipeline, since the company’s candidates use this technology. And it’s positive because it could inspire other companies to strike up licensing deals with CRISPR.
So, as I mentioned, the agreement with Vertex is another good reason to buy CRISPR shares right now. But it’s not the only reason. As I also mentioned, CRISPR and Vertex are waiting on regulatory decisions regarding exa-cel. They’ve submitted the candidate for sickle cell disease and beta thalassemia to regulators in the U.S., Europe, and the U.K.
Right now, treatment options for these illnesses are limited. So exa-cel could reach blockbuster revenue levels.
An approval of exa-cel would be another vote of confidence for CRISPR’s technology. The company also has an immuno-oncology candidate that’s in a phase 2 trial. And that trial may support a regulatory request. That’s another potential source of revenue in the not-too-distant future.
At the same time, CRISPR shares are trading around their lowest level in three years. And right now the company offers much more visibility than it did a few years ago. That visibility is pointing to a bright future. That’s why right now — for the technology licensing deal and more — is a great time to invest in this innovative biotech player.
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Adria Cimino has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
