What Do The Three Biggest Gene Editing Stocks Do?
Some great memes have been flying around lately about how the already ignorant Robinhood lot is becoming even more ignorant, eating up just about anything you’ll feed it. A group of stock manipulators on Reddit are, well, manipulating the markets, and everyone pretends like it’s the second coming of Occupy Wall Street that’s overthrowing the man. “In my three days of trading, I’ve never seen anything like this,” one fellow remarked, and he’s right. Today, your best bet is to stay clear of the hype. If you get caught up in it, act rationally.
That’s what we told ourselves when our long positions in the three original gangstas of gene editing – CRISPR Therapeutics, Editas Medicine, and Intellia Therapeutics – soared to the moon and we decided to start trimming.
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At that time we realized we’re guilty of an absolutely rookie move – not knowing what the stocks we hold actually do.
The Three Biggest Gene Editing Stocks
Every single tech stock we hold has been vetted thoroughly so that we could explain what they do to someone in an elevator ride in 30 seconds while simultaneously spelling out the value proposition and addressing obvious points of contention. However, we have very little idea of what the three gene-editing stocks we’re holding right now are up to. That’s because we simply took a spray and pray approach – hold all three of the original leaders in gene editing in hopes that one or more of them strikes gold. Sure, we know all about the promises of gene editing, but how exactly are each of these companies capitalizing on this grand opportunity? Today, we want to take a closer look at what each of these stocks does. Since none of our MBAs are remotely qualified to discuss medical topics, we’ll try and keep it extremely simple.
Most companies developing therapeutics don’t have the resources to take their product to market when that time arrives. So, they’ll progress along the FDA approval process until their partner(s) are sufficiently convinced that there’s a winner in the pipeline. At that point in time, they’ll be swallowed up. Consequently, each company’s partner(s) are a key component in their future success. Looking at how these relationships evolve over time can give us some indication of how things are going.
Each of these companies is trying to bring a pipeline of therapeutics to market that use their gene-editing platforms. All have partners, but not all candidates have partners. Some are going at it alone. Back in 2016, we noted key partners for each firm as follows:
Each company’s investor deck starts out with a few slides you can understand, then descends into a cryptic collage of information that only a subject matter expert would understand. We don’t invest in businesses we don’t understand, and we don’t invest in pharmaceutical companies because there’s too much regulatory risk you can’t control. We’re admittedly breaking both of our rules by investing in these three companies on the grounds that gene editing is a technology that will change everything we know about treating disease. Let’s see how each of these companies is going about doing that.
What CRISPR Therapeutics Does
All companies have grand plans for their technology platforms, but let’s try to focus this analysis on pipeline candidates that have entered clinical trials. For CRISPR Therapeutics, there are two cohorts in clinical trials – one addressing diseases of the blood, and one addressing oncology.
The lead product candidate – CTX001 – is targeting two diseases (beta thalassemia and sickle cell disease) with Vertex Pharmaceuticals (VRTX), a $56 billion pharmaceutical company that cleared $6.21 billion in sales for 2019. A recent MarketWatch article talks about how Vertex “is considering buying companies with mid-to-late-stage products in development in the future.” That’s the first clue of Vertex’s intentions here. The second is in the latest 10-Q filing which elaborates on the very convoluted payment schedule that defines the partnership between Vertex and CRISPR. The complexity of this key relationship directly translates into share price volatility.
CRISPR also worked with German giant Bayer, one of the largest pharmaceutical companies in the world, on a joint venture (JV) called Casebia which both companies used to own half of. At the end of 2019, the JV was terminated with CRISPR now owning 100% of Casebia and Bayer having an option to co-develop and co-commercialize two products. In other words, Bayer didn’t like where things were going, but wanted to have an option just in case everything works out.
The key takeaway here is that the success of CRISPR is heavily dependent on their relationship with Vertex, a company that can help them take their candidates to market and perhaps provide the firm with an exit. If anything goes wrong with their lead candidate – CTX001 – it spells bad news for the company, and we’d probably look to exit our position. The problem is, that’s not a binary event. It’s something that transpires over time, and before you know it your shares are worthless and the company is filing for bankruptcy. We learned that the hard way with Bind Therapeutics.
What Editas Medicine Does
Editas claims to have achieved the first-ever administration of an in vivo gene editing medicine in humans (EDIT-101) for potentially curing genetic blindness. That’s their flagship therapeutic and the only one that’s progressed to clinical trials so far.
It’s interesting to see how they’re also developing therapeutics to address the same two diseases as CRISPR – beta thalassemia and sickle cell disease. (Given there’s been some bad blood between these two companies in the past, maybe this is being driven to some extent by egos, or perhaps these use cases are low hanging fruit.)
Getting back to EDIT-101, Editas was working with a pharmaceutical company called Allergan which was acquired by AbbVie (ABBV) for $63 billion last year. After the acquisition, Abbvie abandoned the alliance with Editas with Endpoints News stating that “AbbVie’s big interest was amping up revenue from the legendary Botox franchise, not breaking new ground with CRISPR.” Editas tried to turn that lemon into lemonade, but not having a development partner can’t be a good thing, not to mention a $183 billion pharma company snubbing your lead candidate doesn’t send the right message to other potential partners.
Without Allergan sharing the cost of product development, Editas expects their expenses to increase substantially. They no longer receive research funding support from Juno Therapeutics (now part of Bristol Myers Squibb), and revenues from that relationship will be recognized upon delivery of option packages. For investors, it gets complicated to keep track of.
What Intellia Therapeutics Does
Gene editing is a powerful tool, so where do you even begin to start? For Intellia, they’re starting by identifying diseases that originate in the liver, have well-defined mutations that can be addressed by a single knockout, repair or insertion approach, and for which effective treatments are absent, limited or unduly burdensome. The company they’ve partnered with for in vivo therapies is Regeneron (REGN), a $52 billion pharmaceutical company.
In vivo treats disease within the body, while ex vivo means taking things from someone’s body – or someone else’s body – doing some editing stuff, then sticking it back in. For ex-vivo treatments, Intellia is working with Novartis (NVS), a $202 billion pharmaceutical company, on sickle cell disease and some other undisclosed programs.
In May 2020, Intellia and Regeneron “expanded the existing collaboration to co-develop potential products for the treatment of hemophilia A and hemophilia B.” Any time your development partner expands their relationship with you, that’s a good sign.
A Common Theme
What the three biggest gene-editing stocks have in common is that they all are trying to bring therapeutics to market using their gene-editing technology platforms. Key to the success of all companies are third parties with which they have engaged in partnerships with. Sudden changes in these relationships can spell disaster for any given drug program, and it’s this uncertainty which makes traditional pure-play biotech investments extremely risky. In that respect, all three of these stocks should be expected to be highly volatile and extremely risky additions to any tech portfolio.
All three of the biggest gene-editing companies are targeting sickle cell disease (SCD), perhaps because it’s an easy candidate for demonstrating how effective their platforms can be. Regarding prevalence, SCD affects approximately 100,000 Americans, decreasing life expectancy to 42 years for males and 48 years for females. Stem cell or bone marrow transplants are the only cure for sickle cell disease, but they’re not done very often because of the significant risks involved.
Because we decided to trim our positions, we’ve now recouped all the initial capital we invested in these three stocks. We’re playing with the house’s money at this point, and we’re not planning to commit any additional capital here because these business models do not mesh well with our overall tech investment methodology. We’ll continue to check in with these firms about once a year or so and hope that one or all are able to successfully commercialize their platforms so that we can take profits in the event of a successful exit.
Investing in companies you can understand allows you to identify key metrics that telegraph the health of a business. Software-as-a-service (SaaS) business models excel in this respect because they are easy to understand and monitor over time. Gene-editing stocks represent opportunity but also a great deal of regulatory risk and uncertainty around key partners who alone can determine the success or failure of a drug program. The fact that we’re playing with the house’s money makes us feel a whole lot better about our investment in three companies we still have a difficult time understanding.
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