The birth of the first genetic edited twins, Lulu and Nana in November 2018, has brought the gene-editing field into the spotlight.
This was made possible by He Jiankui who was at first lauded for this achievement by China’s government but after a day, they changed track as there was international attention to this controversial milestone.
The scientist was trying to rid the twins of the HIV virus, where one of the parents was a carrier. He was eventually jailed for 3 years for this feat.
Bill Gates has highly recommended the book, The Code Breaker, which follows the events leading to the invention of the CRISP gene-editing technology by Jennifer Doudna.
For this breakthrough, Jennifer Doudna and Emmanuelle Charpentier earn the esteemed Noble Prize. This technology was also utilised by He Jiankui for the birth of the gene-edited twins.
They have opened the floodgates for the launch of this field and the different applications could lead to possibilities that will allow us to cure diseases, fend off viruses, and enhance our children.
Gene-Editing Industry Outlook
We will look at the potential of the sector outlook through the lens of the different market research companies’ insights.
The global gene editing market is expected to grow from USD 4.2 billion in 2020 to USD 13 billion by 2028, at a CAGR of 15.2% during the forecast period 2021-2028.
Source: Fior Markets
According to Emergen Research, the global gene editing market size was USD 5.20 billion in 2020 and is expected to reach USD 18.50 billion in 2028 and register a revenue CAGR of 17.2% during the forecast period, 2021-2028.
Market Dynamics:
The global gene editing market revenue growth is majorly attributed to factors such as the growing prevalence of chronic and genetic disorders globally, increasing research & development activities in the field of genomics, continuous advancements in gene therapy, and increasing applications of genome editing technologies in the pharmaceutical, biotechnological, and agricultural sectors. Technological advances in gene-editing tools, the rapid spread of the novel coronavirus worldwide, and the increasing use of CRISPR-based diagnostic tools to detect the SARS-CoV-2 virus are among the other key factors expected to drive the global market revenue growth over the forecast period.
Source: Biospace
The global CRISPR gene editing market was valued at $1,088.6 million in 2020, and it is expected to reach $18,856.6 million by 2031, registering a CAGR of 29.60% during the forecast period.
Source: ResearchandMarkets.com
From the collective analysis, all the research companies’ have a consensus on the growth trajectory of this new field. We are looking at an annual growth of 15%-30% based on their forecast which is very commendable growth given the current economic landscape.
The Players
Source: Motley Fool
These are the five stocks that Motley Fool have shortlisted for investing in this field. However, we will filter it down to 3 stocks to do an analysis on as they have been featured in the book, The Code Breaker.
Intellia and Editas Medicine are cofounded by Jennifer Doudna and she has since left Editas Medicine due to an internal fallout. CRISPR Therapeutics was founded by Emmanuelle Charpentier.
Among these 3 stocks, CRISPR Therapeutics offers the most diversification in terms of areas of focus. It is also the most attractive in our view which we will touch on shortly.
Financial Ratios
| Stock/Price | Price Earnings Ratio | Price to Sales Ratio | Price to Book | Dividend Yield | Debt to Equity | Current Ratio | Price to Free Cash Flow | Market Cap |
| CRISPR/ 54 | 11.5 | 4.5 | 1.7 | Nil | Nil | 20 | 9 | 4.1 Billion |
| Intellia/ 64 | Loss Making | 146 | 4.6 | Nil | Nil | 6.11 | Negative Cash Flow | 4.8 Billion |
| Editas/ 16 | Loss Making | 43 | 2 | Nil | Nil | 10.82 | Negative Cash Flow | 1.1 Billion |
Source: Reuters
Just at a glance, it is a no brainer that our money will be on CRISPR given the financial metrics. The reason for the decent valuation of CRISPR is due to a collaboration revenue recognised from the infusion of funds by Vertex to the tune of 900 million dollars.
From analysing the business model of such gene-editing companies, a huge bulk of revenue is from such collaboration revenue but Intellia and Editas fall way behind in terms of quantum which we will share the numbers in the next table.
There would be a sharing of revenue once the gene-editing technology is accepted by the medical authorities and goes into implementing the gene-editing technology for patients. The sharing of profits for the Vertex and CRISPR deal would be on a 60-40 arrangement. Given Vertex’s huge outlay, we can only infer that their technology is the closest to being rolled out for the general public use.
In general, all 3 companies are financially strong with no debt. So the game plan is a matter of how long their existing pile of funds and future collaboration revenue they can generate last to get a workable gene editing solution out to the market. They would then reap the rewards through the joint collaboration from the profit sharing.
| Stock | Cash and Short Term Investment | Operating Cash Flow | Investing Cash Flow | Collaboration Revenue |
| CRISPR | 2.4 billion | 540 million | (1.05 billion) | 915 million |
| Intellia | 750 million | (225 million) | (550 million) | 33 million |
| Editas | 500 million | (164 million) | (55 million) | 25.5 million |
Source: Investing.com
We look into the operating and investing cash flow for these 3 companies. Operating cash flow signifies if a company is profitable on its own through their normal course of business.
CRISPR is in a very good position with a positive operating cash flow of 540 million dollars as they registered a big payday by recognising 900 million from Vertex as collaboration revenue. Intellia and Editas are still not able to get a big collaboration revenue to drive their operating cash flow to a positive number.
Collaboration revenue would be lumpy for these companies as CRISPR registered just less than a million in 2020 versus 915 million in 2021. Intellia’s number was 57 million versus 33 million in 2021. Editas saw a huge drop from 90 million to the current 25.5 million.
Given the cash and short term investment figures and their cash burn rate, CRISPR would have the longest runway with funds able to sustain them for 5 years. Intellia at their current run rate might just have a year and Editas fare better at slightly more than 2 years.
Therefore, with the huge collaboration revenue recognised by CRISPR, it put them as the favoured contender to turn out victorious in terms of their financial strength as they have the strongest balance sheet.
Is this a Fad?
Source: MooMoo- Chart of ARKG
Genomics stocks have a good run in 2020 but have since retreated after the euphoria. So is the genomics field really one that is sustainable and not runs on just concept.
We believe there will be a bright future for it but it would take time for the general public to accept the implications of gene-editing have on our society.
Also, there would be lots of hurdles to clear in the regulatory area. Finally, costs have to come down drastically to make it viable not only for the top 5% but the masses.
Taking a leaf off previous disruptive technologies such as solar and 3D printing which we have covered in our Telsa article, we have observed that after the initial hype and euphoric run, prices would linger for an extended period of time. These could be the hurdles to make disruptive technology scalable in terms of costs, regulations and scalability.
The 3D printing stocks price is still languishing after 6 years and for solar companies, it got a breakthrough only in 2020 after range trading for almost 8 years.
Therefore, though we are bullish on the prospects of gene-editing, we opined that it will take time for the technology to sit well with the masses. Thus, prices are likely to trade rangebound if previous disruptive technology plays historical performance are taken into consideration.
Summing Up
In the future world, we could likely extend our lifespan through gene-editing techniques. For those well off, you could possibly enhance your child’s genes even before they are born but this would be very controversial, as it will lead to a pull away of the elite from the masses further.
However, the medical cures through gene-editing would be the low hanging fruits where diseases such as sickle cells, cardiovascular, diabetes and etc could possibly see a better cure than the current medical solution. Hence, it would have a good chance of clearing the regulatory hurdles.
The growth of the sector for the next 5-10 years is estimated to grow at an annual rate of 15%-30% based on forecasts by research firms. The tailwinds would entail a secular uptrend for this sunrise field.
However, the acceptance of a disruptive technology would take time, based on our analysis of previous disruptive technologies, prices of gene-editing stocks could be range-bound for an extended period of time before the next upsurge could be in play after conditions for mass acceptance are put in placed.
We could be right on the sector but just as in Jack Ma who started China Yellow Pages first before Alibaba to take advantage of the Internet revolution but failed. The market was then not ready to embrace the technology.
For those who are keen to invest in this field, our top stock pick would be CRISPR Thereupatics based on their financial strength and also the diverse areas of solutions they are venturing into. Also, the recent 900 million dollars collaboration revenue from Vertex could be validation of their technologies viability.
Two ETFs to considered for this sector will be:
Global X Genomics And Biotechnology ETF (GNOM)
Invesco Dynamic Biotechnology & Genome ETF (PBE)
Disclaimer:
The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. The content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stockbroker or financial advisor.
