Editas (NASDAQ:EDIT) completed their IPO this week in a difficult market and is now the first "pure play" on CRISPR. In the biotechnology field CRISPR is viewed as the Next Big Thing. Journals like the MIT Technology Review have called it "the biggest biotechnology discovery of the century." For decades money has been poured into bringing down the cost of mapping the genome. Most agree that the mapping problem is behind us as costs are reasonable and still declining. This provides the foundation to take the next step - modifying those genomes.
At a very high level CRISPR is a set of techniques that "has the potential to to achieve precise, directed changes in DNA." You can think of it like a kind of "cut and paste" tool for the genome.
As we evaluate Editas as an investment opportunity we'll cover some of the advantages CRISPR offers in terms of drug development but also acknowledge the long, expensive and uncertain path of bringing these therapies from the lab to FDA-approved commercial products.
EDIT is trading close to their original $16 bottom-of-the-range IPO price after a brief pop to $18. This suggests some caution from institutional buyers in what has been a bad market so far this year. The company sold 6.8 million shares, raising $108M in the IPO. With 36.6 million shares out this puts the market capitalization at just under $600M. [If you missed it visit our Editas page for links to the roadshow slides and IPO Candy transcript. Plus the filing is there too which makes good reading, especially around the IP.]
Editas has positioned themselves a kind of platform company that plans to develop a broad range of drug therapies on top of the CRISPR technology while also innovating around the core technology to enhance it to suit their needs. The founders and advisory board include Feng Zhang of the Broad Institute who holds key patents (for now) and George Church of Harvard Medical School, MIT and the National Academy of Sciences. Church is a bit of a rock star in the CRISPR space at this point.
An operating management team has somewhat hastily put in place along with a board that is mostly a mix of biotechnology venture investors. The team will need some time to "gel" as a team. The company acknowledges in their prospectus that their internal controls need work.
The Editas strategy is a combination of broad activity in terms of research programs (for which they hope to attract larger partners) and focused drug development for specific genetic-based diseases. The lead program targets a congenital eye disease called Leber Congenital Amaurosis 10 "LCA10" which causes progressive blindness. The problem is a defect in the genome which results in the wrong protein being produced, which causes the blindness.
Going after LCA10 makes sense and the company has demonstrated that they can modify the genome and successfully restore proper protein production in the eye and allow patients to see normally. The eye is also a relatively contained environment for which delivery methods are already established. The company hopes to file an IND in 2016 and get into clinical trials in 2017.
The important aspect of developing a treatment for LCA10 is to prove that Editas can bring a drug through the process to commercial success. Turning CRISPR innovations into approved and effective drugs is a fledgling area for the whole industry. It's crucial for Editas to prove they can field a real drug and it will be a few years before we know the answer.
The have have partnered with Juno to develop gene editing in T cells to treat cancer. This is a piece of the broader strategy to target many therapeutic categories at once. Juno has been working on making T cells effective at killing cancer tumors.
In terms of the broad strategy Editas has a number of research programs in areas like cancer, blood diseases, muscle diseases like muscular dystrophy, lung disease like cystic fibrosis and diseases of the liver. Their goal is to get these programs to a point where they can attract a major partner to assist with further development and commercialization.
The CRISPR Landscape
The other three most visible and well-funded private players are CRISPR Therapeutics and Intellia Therapeutics, both located in Cambridge, MA and Carbiou Biosciences in California. There are also quite a few other companies in the more general category of gene editing - these include bluebird bio, Cellectis, Poseida Therapeutics, Precision Biosciences, and Sangamo Biosciences. Gene therapy has been a focus of some time at companies like Abeona Therapeutics, AGTC Therapeutics, Avalanche Biotechnologies, Dimension Therapeutics, REGENXBIO, Spark Therapeutics, uniQure, and Voyager Therapeutics.
Although MIT, Harvard and the Broad Institute have been by far the most active patent filers we also note high levels of activity from industrial companies like DuPont and Dow Chemical. Although they don't appear in the patent league tables we know that Monsanto is active in this area as well. Technology companies like Agilent and Thermo Fisher are in the space to provide tools and materials to labs.
It's also important to note that there are different flavors of CRISPR and even wholly different gene editing techniques like TALEN and zinc fingers. The particular approach that Editas and most companies are using for developing therapeutics is CRISPR-Cas9. At the same time there is ongoing work to develop alternative enzymes to Cas9 they may work and provide new paths to development.
No discussion of this area is complete without touching on the roiling IP dispute between researchers at the MIT/Harvard Broad Institute and the University of California, Berkeley, about the patents underlying the CRISPR technology. The full story reads like a soap opera. The CRISPR technique was first publicly described when Science published an article by Doudna and Charpentier in 2012. But then an MIT researcher (Zhang) filed for and received a patent around his own work published in Science in February 2013.
Some interpret the Zhang patent claims as opportunistic and grasping which has made resolution to the disputed claims more difficult than usual. In many cases like this parties decide to "pool" their patents and license them as a group, sharing in the fees and royalties. With egos and a potential Nobel prize at stake the parties are more prepared to fight than compromise and collaborate.
Berkeley has requested a "patent interference" review process from the patent office. Aiming to evaluate the body of claims using a "first to invent" rather than a "first to file" test the goal is to settle the disputes and grant the full body of claims to one party.
However the body of research around CRISPR keeps moving forward and all the players are piling up patents and applications. Most of the fundamental research is going on at the university level. At the same time the commercial companies like Editas, CRISPR Therapeutics and Intellia are focusing on the IP around the steps to produce effective drugs like editing advances, improved control and specificity and delivery to the site of disease.
At the IPO Editas stresses their exclusive licenses to 21 issued patents and general licenses to over 180 pending applications from universities and research hospitals. They are aggressively filing on their own inventions as they are discovered along the way. Their internal portfolio is up to 31 pending applications and will be a core strategy for protecting their position.
In the end this focus on patents will create such massive IP asset investments that it's likely they will all eventually be cross licensed. The real investment value will be approved drugs that enjoy protected status in commercial markets.
Most informed insiders estimate that the patent situation will take from three to five years to be resolved but this gives the companies, particularly the ones targeting drug development, lots of time before they face any real reckoning.
There aren't many numbers upon which to base any valuation arguments on. In the case of Editas even the potential markets are not quantified. That means investors can only look for newsflow to drive stock performance over the next two or three years. Some positive developments are likely to include:
- An IND filing for LCA10 (2016) and the start of clinical trials in 2017.
- Additional partnerships (like the one with Juno) to target their other ongoing research programs in different therapeutic categories.
- New patent grants and/or resolution of the existing patent dispute between MIT/Harvard/Broad and Berkeley. (could go either way though)
On the negative side though there may be some issues to grapple with:
- One or more of the other CRISPR companies (CRISPR Therapeutics, Intellia, Caribou) is likely to come public as well. Goldman will be the lead on one of them I suspect.) This will erode their "early mover" advantage and show that there are multiple "platform companies" so Editas is far from alone.
- At this stage we still have real "technology risk" with CRISPR since it remains far away from being a commercial success in human drug development.
Finally we can compare the current market value of Editas at $600M with Sangamo (NASDAQ: SGMO) at $370M. Sangamo has one product in Phase 2 trials and three in Phase 1 with seven other pre-clinical programs, three with partners Biogen and Shire.
It feels like appreciation from these levels for EDIT shares will depend mostly on enthusiasm and things that we have little visibility on. In the very near term we'll see the banking analysts render their opinions and provide some price targets. That may help. After that we'd be watchful when share lockups expire as the vast majority are held in VC hands.
The potential for gene therapy to be effective in targeting the 6000 or so genetic diseases is certainly huge. The race is on to see who can get it done. In the meantime discretion is the better part of valor on the shares of EDIT for the next year or two.
Latest Technology Review article on the patent situation. More good articles there to explore on CRISPR and the IP as well.