I did thorough DD on CRSP so you didn't have to. Using financial statements and Crispr Therapeutics' 10K report, I provide you facts about their financial health (or lack thereof) and give my opinion on whether CRSP would be a great investment for long-term investors, like myself. Let's dive in!
Company Name: Crispr Therapeutics AG
Industry: Biological Products/Biotechnology
Previous Close Share Price: $125.69
Oustanding Shares: 71.32 Million
Market Cap: 9 Billion – Mid Cap Stock
BRIEF BACKGROUND ON THE CRISPR THERAPEUTICS:
Crispr Therapeutics AG (I’ll refer to them by their ticker from here on out) is leading the way in the biotech industry with their cutting-edge gene editing technology. They are focused on developing gene-based medicine for serious genetically defined human diseases like: transfusion dependent thalassemia (TDT) and sickle cell disease (SCD). For her efforts, Dr. Emmanuel Charpentier, one of the scientific founders of CRSP shared the Nobel Prize with her collaborator for their invention of the CRISPR gene editing technology.
ANALYZING THE FINANCIALS:
Cash and Cash Equivalents: $1.1 Billion
· CRSP has great cash reserves on hand.
Total Current Assets: $1.7 Billion
Total Assets: $1.8 Billion
Total Current Liabilities: $94,259,000
Short Term Debt: $11,362,000
· Low debt amount in relation to cash reserves.
Current Ratio: 18.21
· This is an excellent current ratio.
· -5.29 (2020)
· -1.23 (2019)
· -3.44 (2018)
· CRSP hasn’t had a positive EPS since their inception and is not trending positively upward. In fact, the EPS is decreased YOY.
Gross Profit: -$354,435,000
Gross Profit Margin: -49%
· In 2019 their GPM was -16%
· Typically, a company with strong financials would have a GPM >40%. A positive 40% that is.
Research & Development: $266,949,000
· CRSP is spending massive amounts of money on R&D. Even if they have large cash reserves, they have been increasing this number every year.
Net Income(Loss): ($348,865,000)
· That number is correct, CRSP had a net operating loss of $348 Million. That’s a huge red flag for me.
Net Income to Total Revenue ratio: -48,520%
· For every $1 in revenue earned, CRSP lost $485.
Return on Assets: -19%
Negative Retained Earnings
Return on Equity: -20%
· Another huge red flag for me.
The company didn’t buy back any shares, because they literally have no retained earnings to buy them back with.
CRSP states in their 10K that they compete in the sectors of pharmaceuticals, biotechnology and other related markets. The competition is these industries is very strong and it is hard for a company to get a competitive advantage over another. CRSP identifies 4 other key competitors to them. Intellia Therapeutics and EDITAS Medicine, who are developing therapies using the same CRISPR gene editing technology as CRSP. While Beam Therapeutics and Prime Medicine have developed new gene editing technology.
Personally, I don’t like the level of competition in the biotechnology industry. It is very hard to compete and gain a competitive advantage over other companies. And even if they do, that advantage only lasts as long as it takes another company to invent new and better technology. As a long-term investor, I personally would not invest in a company that can’t gain or maintain a competitive advantage in an industry. There is really not much money to be made in the long-term.
RISK FACTORS IDENTIFIED BY CRSP IN THEIR 10K REPORT:
- CRSP has incurred huge net operating losses each year, with the exception of 2019. The only reason they were profitable in 2019 was due to collaboration revenue from Vertex (who they had or have a partnership with) and from the acquisition of Casebia.
- In their 10K report, the company states that they expect to continue to incur significant expenses and operating losses for the foreseeable future.
- Also stated (in 10K), they need to continue to raise capital which will ultimately continue to dilute shareholders.
I think that CRSP is very overvalued, considering their fundamentals are terrible and will continue to be for the foreseeable future. I acknowledge the cutting-edge innovation of gene editing and I think that its future applications could be very valuable. Despite that, I would not want to invest in this company right now. A company that is not generating much in revenue, spending hundreds of millions on R&D, has a GPM of -49% and continually operates in a loss in the hundreds of millions just doesn’t sound attractive to me. I don’t see this company ever creating value for me as an investor. This stock is a great speculation play, sure it has the potential to do this or do that, but I am making my decision based on the fundamentals, and the fundamentals are telling me to invest my money elsewhere.
I have no individual shares of CRSP, but I do have shares indirectly through the ARK Innovations ETF, which I have a small position in. For those of you who think I am trying to bash on this stock, I am not. Honestly I think the company is very innovative and cool, I just don't think their financials are cool.
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If you would like to be able to do your own due diligence (DD) on a company to help you make more informed investing decisions, consider checking out my printable DD guide in the products section. This is what I use to do DD on companies that I am considering investing in. If that's something that you're interested in, I think it could be very useful to you and you should check it out.
DISCLAIMER: I am not a financial advisor. I also do not possess a degree in finance. I am an average dude with a blog that enjoys learning and talking about investing. This blog is for educational purposes only. Any time you are considering investing your hard-earned money in a company you should perform your own due diligence and talk to a financial advisor.