CRSP And BLUE Shareholders Need To Team Up To Take Down The Shorts Instead Of Taking Down Each Other

On Friday, CRISPR Therapeutics AG (CRSP), along with its partner Vertex Pharmaceuticals Incorporated (VRTX) got approval from the FDA for its therapy Casgevy for sickle cell disease. bluebird bio, Inc. (BLUE) also received approval for its therapy Lyfgenia for the same disease. Despite the approvals, CRSP went down 8% while BLUE dropped 40% in "sell on news" type of action and a lot of making mountains out of molehills by shorts on the already well-known negatives surrounding these novel therapies. 

CRSP has a 40%/60% split with VRTX, so we can infer that Casgevy has a $9 billion valuation based on CRSP's $3.6 billion enterprise value. BLUE has a market cap of just over $300 million while already generating revenue on its pipeline. While Casgevy is being assigned a much higher valuation than Lyfgenia, both of them are undervalued compared to the potential market size of the United States alone. They should be going way up, not down, on an approval and ability to immediately market their therapies.

Part of the reason why the stocks went down and there was negative sentiment around this news was the apparently high price of each treatment. $2.2 million for Casgevy and $3.1 million for Lyfgenia. Despite the fact that these are just list prices subject to negotiation and that there is evidence to show that these treatments save at least that much money in treating patients for SCD over many years, there may be (manufactured) backlash at these high list prices. 

There were also complaints about the black box warning for blood cancer on Lyfgenia, while BLUE failing to receive a priority review voucher that was pre-sold for $103 million means it might have to do an equity financing within the next six months. Meanwhile Casgevy comes with an extensive preconditioning process that may result in a patient spending months in a hospital. All of these are considerations, but should not stop the companies from doing good in the world and making shareholders profits as long as they aren't scared off by the short narrative or fighting each other.

There is estimated to be over 100,000 people living with SCD in the United States. CRSP believes its treatment can be used by about 16,000 of these patients, while BLUE estimates its treatment can be used by about 20,000 of these patients. Both intend to have therapy for all 100,000 people within the United States and more globally, but let's focus on the existing market.

According to Fierce Pharma:

"The Institute for Clinical and Economic Review (ICER) assessed that both Vertex and bluebird’s gene therapies would meet cost-effectiveness thresholds if priced between $1.35 million and $2.05 million for a single dose."

So let's assume average revenue per patient is realistically $1.5 million. Assuming a total of 20,000 eligible patients between the two therapies, that is $30 billion in total addressable market between them. Casgevy and Lyfgenia combined don't even add up to $10 billion in valuation and most of that is Casgevy.

Let's assume out of these 20,000 patients that CRSP and BLUE are each able to treat 2,000 a year for the next five years. That would be $3 billion a year in revenue for BLUE while CRSP would take a 40% share for $1.2 billion.

CRSP's revenue multiple based on a $3.6 billion enterprise value is 3x right now. For context, VRTX's revenue multiple on its more mature cystic fibrosis product line is 9x. Assigning a 9x multiple and adding $1.7 billion in cash leads to a $12.5 billion market cap, or well over $150 per share for CRSP. BLUE's valuation based on this method is so out of whack there is not even a point in calculating it. It's priced for total failure right now. No level of worrying over potential dilution or the list price or the black box or VRTX/CRSP's superior ability to set up sales infrastructure is worth that deep of a discount.

So what's with all the overbearing hand-waving over the issues with both of these companies? A look at the short interest tells you the story. CRSP has over 16 million in shares short on nearly 80 million shares outstanding for over 20% short interest. Shares short was 13.6 million back in mid-October when it was trading under $40. So shorts had a chance to cover at profits, but didn't. Now they are holding a losing position while more piled in. Volume was 17 million on Friday (normally 1-2 million a day), so some of them covered but certainly nowhere near the majority. Given the approval and no need for CRSP to dilute, shorts are in a very weak position on this stock because there are no company-specific negative catalysts left.  

BLUE has a similar short interest to CRSP with just over 20% - or 22.5 million of a total 109.3 outstanding - short. BLUE shorts won't be in such a desperate state as CRSP shorts as the stock tanked 40% on Friday and sits more or less at the same price over the last nine months. However, given its small cap status and large demonstrated upside post-approval, it would be wise for shorts to exit their position while exiting is good. People can talk about the need to finance, but given that the therapy is now approved and ready for sales, BLUE could come up with a myriad of non-dilutive solutions, including debt or licensing out ex-U.S. territories. 

Shorts have a great interest in keeping the sentiment around CRSP and BLUE as negative as possible right now. And you know who is helping them? CRSP shareholders on BLUE and BLUE shareholders on CRSP. So many short-sighted shareholders are battling each other for treatment supremacy that they lose sight of the fact that both companies are undervalued. Both have lots of room to grow and both can't possibly take the entire addressable market right now. In fact, if these companies care so much about people suffering with sickle cell disease, they should be more than happy to refer or step aside to allow the "competitor" to treat a patient if their treatment is deemed to be not a good fit. 

It's the shorts that investors need to be battling right now. They are in the weakest spot, not either of the companies. But right now the investment community is being taken over by the Adam Feuersteins and Brad Loncars of the world and letting their narratives of "cautiousness" take over. Likely in favor of clicks, attention and ability to sound smart over anything else. Just because you're a biotech expert doesn't mean that you have expertise or knowledge in this very specific and young field of gene editing on SCD. Let the patients and doctors deal with the black box issues or preconditioning process. And let the insurance companies deal with price. It's not as if insurance companies haven't dealt with and approved of one-time treatments that cost a 7-digit figure before. Because the alternatives are actually more costly in the long run. 

If CRSP and BLUE shareholders work to support each other instead of tearing each other down, they will see investment gains, some of which will be on the backs of shorts covering at losses. Don't do the work for them by tearing down your "competitor". The addressable market is plenty large enough to support more than one mid-cap stock.