I have been investing in and trading the three primary CRISPR public companies for over three years because I believe they represent a paradigm shift in medicine and culture, with the potential to transform the world and life as we know it.
I even include the old-school gene editing company, Sangamo Therapeutics SGMO, because its original innovations with zinc finger nuclease "cut and paste" technology still seem to offer leverage on a future where many diseases can be eliminated or prevented.
This means these stocks offer asymmetrical risk/reward opportunities for biotechnology investors. But the ultimate payoffs could be many years down the road until important clinical trials prove the science is both effective and safe.
Until then, biotech investors will "do what we do" and speculate on those unknown futures. And that means the stocks will have big swings between hopeful euphoria and pessimistic fear.
For instance, in my Healthcare Innovators portfolio, I've owned shares of Editas Medicine EDIT since September of 2017.
And I've watched it go from $20 to $35 at least three times without ever taking any profits.
But with its bigger cohort, CRISPR Therapeutics CRSP, I've traded those shares on multiple big swings, including gains of 83% last year and 71% just last month.
Why did I "trade" CRSP and just hold EDIT?
I wish I could say I had a "more perfect" method to share that captured every big swing. Instead, I had a reasonably good methodology that satisfied my requirements for getting rewarded for some risk, and keeping some risk for potentially higher reward. As you probably know, balancing risk and reward is never one perfect recipe for all investor appetites.
Also, with breakthrough science like this, I've always expected that M&A could be in the future of any of these companies, as a mega-cap behemoth like J&J or Pfizer could snatch them up for pocket change.
In my back-of-envelope decision method, the questions I asked myself each time formed sort of an if/then matrix like this...
1. Do I own all 3 CRISPR stocks? If so, taking out-sized profits on one of them seems prudent -- especially with a "mad scientist" mood about gene editing always lurking in the news.
2. Where is the market cap relative to where it could be? EDIT and Intellia Therapeutics NTLA were always very strong buy candidates to me near/under a $1 billion valuation vs. their potential of $3+ billion take-out bids.
3. How is the pipeline developing? EDIT and CRSP R&D have been active and progressing nicely, so there was always an upside risk with taking profits on them -- unless the clinical data is more than a quarter away, as it was for CRSP when I recently sold above $100.
4. What's the big pharma M&A weather look like? If positive, then always consider keeping at least two of the stocks, no matter what the broad market is doing.
5. And CRSP itself presents a special situation where its "big bro" and research partner Vertex Pharmaceuticals VRTX is so involved in clinical trials for hemoglobinopathies, like sickle cell disease and beta thalassemia, that no other big pharma is likely to bid for CRSP.
In the video that accompanies this article, I explain this decision-making process with real examples of trades I've done. And I also share why and which major Wall Street investment bank has a "Sell" rating and $31 price target on CRSP.
In the end, the answer to the CRISPR conundrum of "buy or trade?" is not a simple "yes" or "no." It's more of a "yes, and yes."
If you want to learn more about CRISPR biotechnology and these stocks, just email [email protected] and ask for my special report The Century of Biology: 7 Biotech Stocks to Buy Now. Tell 'em Cooker sent you.
Disclosure: I own EDIT, NTLA, and SGMO shares for the Zacks Healthcare Innovators portfolio.
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