People love their pets and are spending more on them than ever. The pet industry is estimated to be a $232 billion global market opportunity growing almost 12% per year. Spending on pet food, products, and care is increasing while the purchase of pets has stagnated as many new pet owners have focused on the benefits of pet adoption.
The pandemic may have accelerated these trends but the pet ownership and spending pandemic shows no signs of abating. Millennials have overtaken Boomers as the largest pet-owning cohort of Americans with 73% owning at least one pet. For millenials, pet ownership has become a life stage on the path to marriage, parenthood, and home ownership.
Different approaches to the same great market
Chewy, Inc. (NYSE: CHWY) and Idexx Pharmaceuticals (NASDAQ: IDXX) are taking full advantage of this trend though through differnt approaches to the market. Chewy is an on-line retialer selling direct to pet owners while Idexx is a leading provider of technology and services to veterinarians.
; by some estimates, more than half of them have a dog. The pet-ownership rate is even higher among those with a college education and a stable income—the same people who are most likely to delay marriage, parenthood, and homeownership beyond the timelines set by previous generations. Dogs, long practical partners in rural life or playmates for affluent children, have become a life stage unto themselves.
The pet industry grows by 11.6% every year.
2-in-3 American households include at least one pet.
Two (2) corporations consume 49% of the pet industry’s market share.
Globally, the pet industry is worth $232 billion.
With both companies focused on the same goal of being first to market with a CRISPR-Cas9 treatment, investors should be asking "Which stock is the better buy?" To answer that, we need to dig into some of the unique advantages these partners bring to the table:
Vertex
Market position: It's a profitable business with a durable franchise based on its highly effective treatments for cystic fibrosis (CF). The high safety and efficacy of the CF treatments coupled with a long-term patent portfolio should keep revenue and profitability high for years.
Cash: It finished last year with $6.7 billion in cash and generated more than $3 billion in free cash flow. That much cash provides a lot of optionality to fund another blockbuster or acquire another company with a later-stage pipeline.
Pipeline: It's focused on deploying all that cash to fund internal development and external partnerships. CRISPR Therapeutics is an industry-leading partner in a promising field with a solid chance of being first to market with a gene-editing treatment worth billions.
Valuation: The stock price is down 29% from its 52-week high over concerns about limited growth potential in the CF market and a decision to stop development of two early-stage pipeline candidates. As a result, Vertex has a P/E ratio of less than 20, versus an average of 31 for the S&P 500 .
CRISPR Therapeutics
Market position: Co-founder Emmanuelle Charpentier was awarded the 2020 Nobel Prize in Chemistry for the discovery of CRISPR-Cas9 gene editing. The company's mission is "developing transformative gene-based medicines for serious human diseases." CTX001 is one of the first attempts to translate CRISPR research into medicine.
Cash: The company finished the first quarter with $1.8 billion in cash. In April, CRISPR announced it had received an additional $900 million payment from Vertex to increase its stake in CTX001. With a first-quarter net loss of $113 million, that cash infusion gives CRISPR more runway to support the years of research and development ahead before generating any sales.
Pipeline: In addition to CTX001, CRISPR has several cancer immunotherapy programs in clinical trials, along with an early-stage regenerative medicine program targeting diabetes. Vertex is also a partner in a number of other CRISPR-Cas9 in-vivo (in the body) research programs.
Valuation: The stock price is up 732% from its IPO in 2016, although it's 47% off its January high, which was set when the market reacted to positive clinical trial results from competitor Intellia Therapeutics . With a market cap of $8.9 billion and essentially no sales, it's easy to build a case that CRISPR Therapeutics is overvalued.
And the winner is ...
Biotech and pharma companies tend to appeal to different investors, and these two companies present an interesting choice if you're deciding to buy one or the other.
You might pick Vertex Pharmaceuticals if you like the idea of a strong franchise generating tons of cash with upside potential from promising investments. One way to think about Vertex: Would you like to be a limited partner in a venture capital fund having a very informed view of where to invest on the frontier of medicine? If so, Vertex may be the stock for you.
You might pick CRISPR Therapeutics if you don't mind valuation concerns or price volatility, and/or if you're not worried too much about a non-zero chance that the company will fail after a problem in clinical trials. One way to think about CRISPR: Would you like to be part owner of a baseball team where everyone in the lineup is swinging for the fences and you either win big or lose big? If so, CRISPR may be the stock for you.
Still undecided? Then consider investing in both, putting a bit more in the one you find more aligned with your investing style. Gene editing has the potential to change the way healthcare is delivered, and both these companies are in the middle of that transformation. For patient, buy-and-hold investors, Vertex Pharmaceuticals and CRISPR Therapeutics could be good additions to your portfolio.
