“It is not necessary to do extraordinary things to get extraordinary results.” – The Oracle of Omaha (Warren Buffett)
Back on Feb. 8, 2018, we featured Crispr Therapeutics (NASDAQ:CRSP), a leading gene-editing innovator to service cancers and rare genetic diseases, in the Integrated BioSci Merger and Acquisition (M&A) report. We noted that a stellar growth company, Gilead Sciences (NASDAQ:GILD), is facing the declining sales for its flagship Hepatitis C products (Sovaldi and Harvoni). Consequently, Gilead has been executing both in-house growth via organic pipeline expansion as well as growth via M&A of invaluable assets. Notably, Gilead management is “fortunate because they are capable” to push further growth by potentially acquiring the next likely breakthrough (gene-editing).
Despite other highly promising candidates (as readers pointed out), Crispr ranks at the top of our M&A list. In the midst of what is seemingly a potential buyout, the company announced on Feb. 8 that Bill Lundberg, M.D., recently stepped down as chief scientific officer to serve as senior advisor, while the high profile Dr. Tony Ho is to take his post.
Figure 1: Crispr Therapeutics stock chart. (Source: StockCharts)
The Basel, Switzerland-based bioscience company Crispr Therapeutics is focusing on the innovation and development of gene-editing technology coined CRISPR/Cas9 and specialized CAR-Ts for the treatment of a vast number of genetic diseases and cancers (as depicted in figure 2). While other molecules can deliver robust clinical outcomes, we are most interested in the substantial prospects of the lead gene therapeutic (CTX-001). Of note, Crispr already secured the partnership with the cutting-edge firm, Vertex Pharmaceuticals (NASDAQ:VRTX), for the mentioned molecule. Despite the controversy regarding the patent for CRISPR/Cas9, it is most likely that Crispr and its $38B partner (Vertex) will be able to defend their intellectual property.
Figure 2: Crispr pipeline. (Source: Latest investor presentation)
It is not unusual to witness a young bioscience to undergo a management streamlining process to support upcoming growth. Back on Jan. 3, 2018, we stated that the former CEO/Founder Rodger Novak, M.D., moved to a higher responsibility position as Chairman of the Board. As per our prior research:
The recent appointment of Dr. Novak into the role as the Chairman of the Board will help to ensure that CTX-001, as well as other molecules, will be advanced accordingly. Serving as the member of the board of Casebia Therapeutics – the 50/50 joint venture between Crispr and Bayers AG (FRA:OTCPK:BAYN) – Novak will work closely with CEO Sam Kulkarni to lead Crispr. As follows, we believe that the said development will add further value to the firm for several reasons. First, Novak co-founded Crispr; hence, he knows the ins-and-outs of the company best to make prudent corporate decisions. Second, Novak was a university professor with the entrepreneur prowess: his business acumen can give the company an edge in pushing for practical and substantial revenues-generating molecules. Executives without the entrepreneur pragmatism are unlikely to innovate blockbusters. It takes both market practicality and sound science for the development of a molecule that delivers robust value for both shareholders and patients. Third, the transition was seemingly smooth to prevent any unnecessary headaches for the company.
In addition, it is not far from the truth that the recent transition of Dr. Lundberg into the role as senior advisor — to enable the illustrious Dr. Tony Ho (who is a highly successful innovator) into the chief scientific officer position — is a prudent decision. With an impressive track record of performance, Ho is widely published in several fields with over 80 papers and co-invented seven patents (and is serving as the Associate Professor of Neurology at U-Penn and John Hopkins). Interestingly, Lundberg is also a high profile executive with the much accomplishments in the bioscience field; nevertheless, Ho has the edge in innovation with the impressive seven patents (and led many successful executive positions at key bioscience firms).
It’s likely that Crispr wants to have the complementary skills set of Founder/Chairman Novak. Ho best fits the bill for he is the unique mixes of superb skills in innovation, academic, leadership, and entrepreneurship. He basically has an integrated skill set to ensure that the gene-editing innovation of Crispr will be successful from bench research to commercialization. While some can view the transition of Dr. Lundberg as disruptive, the other scenario is more of a management streamlining as we elucidated. As per Dr. Lundberg’s own statement:
I have had the privilege of working with a wonderful, talented and dedicated group of people at Crispr Therapeutics. We have filed the first company-sponsored clinical trial applications for CRISPR-based therapies, and now is a natural time for me to transition to a Senior Advisor role. I am confident in the success of the Crispr team to continue to advance important gene-based medicines for patients suffering from devastating diseases.
Notably, it’s great that Crispr tapped into the in-house talent for the transition of Dr. Novak into higher management roles (which is in accordance to Philip Fisher’s teaching). Nevertheless, there are instances like with Dr. Ho that the fresh insight is needed to lead the ship. Remarking on the recent development, CEO Kulkarni enthused:
Bill was instrumental in establishing our research operations and advancing our CRISPR/Cas9 platform from the research phase to clinical evaluation. On behalf of Crispr Therapeutics, I thank Bill for his leadership and look forward to his continued involvement. Crispr will continue to build on this foundation under the leadership of Dr. Tony Ho, Head of R&D, to advance our mission of translating the CRISPR/Cas9 platform into transformative medicines.
Our investing thesis in Crispr is primarily based on the data analysis that CTX-001 has a highly favorable chance of posting positive outcomes for at least beta thalassemia. Moreover, we speculated that the company is one of the leading candidates to be acquired by Gilead. Investors should be cognizant that the study of M&A is quite a low-yield endeavor, which confers the high risks that such an event might not consummate. Furthermore, there is a small chance that CTX-001 might not post positive data in its future trials. In such a situation, Crispr stocks can tumble by over 50% and vice versa.
The other key risk deals with the general market condition (i.e., potential recession). If it comes this year, we expect most stocks to trade at least 30% lower than their current price. We thrived after the 2008 Great Recession and thoroughly studied the investment prospects in this special situation. Hence, it is most certain that Crispr is a prudent stock to hold through at least the next bull market. Of note, the aforementioned company is just one among several stellar firms that are likely to get acquired this year. In the prior research published exclusive for subscribers of Integrated BioSci Investing, we elucidated certain characteristics that enticed a bioscience for an acquisition.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.