Your Guide to Investing in Gene Editing

Fortunes can be made by investing early in something big. It happened for some investors with personal computers. It happened for others with the internet. 

But PCs and the internet are no longer new. Is there something potentially big that's still in its early stages on which investors could make a fortune over the next several years? Yes, there is. Here's your guide to investing in a relatively new technology that could generate billions of dollars in the future -- gene editing.

What is gene editing?

Gene editing, also sometimes referred to as genome editing, is the insertion, deletion, or replacement of DNA base pairs within a gene. Let's dig into that definition a little deeper to understand exactly what it means.

You might recall from high school or college biology classes that genes are the basic functional unit of inheritance. The complete set of genes is called the genome. Most of your physical traits are the result of instructions coded in your genes.

A gene is made up of segments of DNA (deoxyribonucleic acid). DNA is structured as a double helix, which looks like a twisted ladder. The steps of this DNA ladder consist of pairs of four chemical bases: cytosine, guanine, adenine, and thymine. Adenine always pairs up with thymine, while cytosine always pairs with guanine.

The unique sequences of these DNA base pairs provide the instructions for building proteins. And it's how these proteins are built that makes each living organism unique. You can think of gene editing as using "molecular scissors" to make genetic modifications by changing the specific DNA sequences in cells.

Different methods of gene editing 

There are three primary techniques used for editing genes. The oldest is zinc finger nuclease (ZFN) technology. ZFN was first developed in the 1990s. With ZFN, zinc finger DNA-binding proteins (ZFPs) can be engineered to bind to and cut specific DNA. After the DNA is cut, the cell tries to repair the broken DNA. ZFN can be used to insert new DNA in between the broken ends while this cellular DNA repair process is under way.

ZFN was the only way to edit genes until 2009 when a new approach was developed. This method was called transcription activator-like effector nuclease (TALEN). Like ZFN, TALEN used engineered proteins to cut DNA at specific locations. However, TALEN allowed more specific targeting of sections of genes. 

It wasn't long, though, before a new and potentially even more powerful gene editing method emerged. Clustered regularly interspaced short palindromic repeats (CRISPRs) had been discovered in bacteria in 1987. CRISPRs are short palindromic (which means they read the same forward and backward) repeats of DNA base pairs that are clustered together with regular stretches of what's called "spacer DNA" (a kind of DNA that doesn't provide instructions for building proteins) between them. However, the potential for CRISPR in gene editing wasn't identified until 2012.

Scientists found that bacteria used CRISPR-associated system (Cas) proteins to defend against attacks from viruses by slicing the DNA of the viruses. Researchers discovered that they could build "guide RNA (ribonucleic acid)" to show these Cas proteins where to cut targeted sections of DNA.

CRISPR is viewed by many as the best approach for gene editing to emerge so far. It's significantly cheaper than other methods. CRISPR is also simpler to use and is faster than ZFN or TALEN because of its ability to target multiple genes at the same time. 

Gene editing in humans

Now that you know a little of the background of gene editing, let's address an even more important subject: How can gene editing be used? Perhaps the most exciting application for gene editing is in treating and even curing genetic diseases.

Over 10,000 diseases are caused by mutations (permanent alternations in DNA sequence) in a single gene, according to the World Health Organization. These are called monogenic diseases. There are even more diseases that are caused by mutations in multiple genes. The primary research focus right now, though, is the use of gene editing in monogenic diseases. 

There are two key ways that gene editing could be used in addressing diseases in humans: ex vivo and in vivo. In ex vivo therapy, cells are removed from the patient's body. Gene editing is then performed on the cells. These modified cells are then placed back inside the patient. Genetic blood diseases such as beta-thalassemia and sickle cell disease are especially conducive to ex vivo gene editing therapies.

With in vivo therapy, the gene-editing tool is packaged using a delivery vehicle such as liquid nanoparticles (microscopic particles less than 100 nanometers in size). The gene-editing therapeutic is then delivered to a target organ, where DNA in the cells in the organ is edited. Diseases that are being targeted for in vivo therapy include cystic fibrosis and Duchenne muscular dystrophy. 

While curing genetic diseases using gene editing is appealing, there are two areas of gene editing in humans that are controversial. One is with editing human germline DNA, which refers to DNA that's the source of all other DNA and is passed down to future generations. Although completely eradicating diseases by editing germline DNA could be possible in the future, many have concerns about permanently altering the human genome. Because of these concerns, 40 countries have banned or discouraged research into human germline editing.

There's even more controversy surrounding the potential use of gene editing to modify the DNA of human embryos and thereby create "designer babies." To many, using technology to predetermine the physical characteristics of a baby would be highly unethical. The technology to create designer babies doesn't exist yet, but it could be possible in the future.  

Gene editing in agriculture

Selective animal and plant breeding have been used for a long time to produce desired characteristics. Gene editing could be viewed as simply a faster and more accurate breeding approach.  

How does use of gene editing in agricultural crops differ from genetically modified organisms (GMOs) that have been around for years? GMOs primarily result from the insertion of a foreign gene into a plant, while gene editing involves changing the DNA sequences in the plants.

The potential for gene editing in agriculture is tremendous. Just as with GMOs, crops could be designed to resist insects and herbicides. Fruits and vegetables could be developed that taste better and don't spoil.

Gene editing has already been used to design dairy cattle without horns and male pigs that don't reach maturity -- and therefore produce better-tasting pork chops. However, U.S. Food and Drug Administration (FDA) regulations have prevented these genetically engineered animals from being marketed so far. 

Both plants and farm animals can also be impacted by genetic diseases. Gene editing could be used to treat and cure these genetic diseases like the technology is being used to target human genetic diseases.

Other potential uses for gene editing

There are also some more surprising ways that gene editing could be used in the future. One is to modify the DNA in pigs so that they grow hearts, livers, and kidneys that can be easily transplanted to humans. Over 115,000 individuals currently await an organ transplant, but there aren't nearly enough human organ donors to meet this demand.

Genetically engineering pests like mosquitoes could also be helpful. Mosquitoes carry deadly diseases including malaria and dengue. Scientists think that mosquito DNA could be modified to make it much less likely that the insects carry these diseases.  

Another possible use of gene editing is in saving endangered species. For example, the Tasmanian devil is endangered by an infectious type of cancer. Gene editing could potentially be used to make the animals more resistant to this cancer.

Perhaps the most mind-blowing possibility for gene editing is in resurrecting extinct species. An extinct animal's genome could theoretically be sequenced, which involves determining the exact order of the building blocks in DNA. The genome would then be compared to a related living animal with somewhat similar DNA. For example, a passenger pigeon's DNA could be matched up to the DNA of a living pigeon or a wooly mammoth's DNA could be matched with the DNA of a living elephant.

The DNA in the embryonic cells of a related living animal would then be modified to match the DNA of the extinct animal. The embryo would be placed in a mother. When the baby animal is born, it would be a living version of the formerly extinct animal.

Granted, some of these uses of gene editing (especially bringing back extinct species) won't happen anytime soon. However, the fundamental technology is already in place to help make these dreams a reality. 

Top gene editing stocks to consider

Several major drugmakers are interested in gene editing. The true pioneers of gene editing, though, are all small-cap biotechs. There are four of these biotech stocks that investors should especially consider.

Data sources: Yahoo! Finance, company websites and SEC filings. 

CRISPR Therapeutics

CRISPR Therapeutics' lead candidate is CTX001. This therapy targets two diseases caused by mutations in the same gene -- beta-thalassemia and sickle cell disease, both of which are blood disorders that affect the production of hemoglobin. CRISPR Therapeutics and partner Vertex plan to begin phase 1 clinical testing of CTX001 this year in Europe for beta-thalassemia and in the U.S. for sickle cell disease. The company also plans to submit an application in the fourth quarter of 2018 to seek FDA approval to begin human testing of its CTX101 chimeric antigen receptor T cell (CAR-T) therapeutic candidate.   

In addition, CRISPR Therapeutics has several pre-clinical programs. The company's programs target rare genetic diseases, including Hurler syndrome, severe combined immunodeficiency (SCID), glycogen storage disease, hemophilia, and cystic fibrosis. Vertex teamed up with CRISPR Therapeutics on the cystic fibrosis therapy, while Bayer is partnering with the company in a joint venture on the SCID and hemophilia programs. 

Editas Medicine

Editas Medicine's lead program is EDIT-101. This therapy uses CRISPR to edit the CEP290 gene in human retinal tissue to treat Leber congenital amaurosis type 10, the top genetic cause of blindness in children. Editas intends to apply for FDA approval to advance EDIT-101 into a phase 1 clinical trial in 2018. Allergan licensed EDIT-101 and up to five other of Editas' gene-editing programs targeting eye diseases. 

Juno Therapeutics, which was acquired by Celgene earlier this year, is also partnering with Editas on using CRISPR to engineer T cells for treating cancer. The two companies recently expanded their relationship. In addition, Editas' pipeline includes several other pre-clinical programs targeting genetic diseases including alpha-I antitrypsin deficiency (AATD), beta-thalassemia, cystic fibrosis, Duchenne muscular dystrophy, sickle cell disease, and Usher Syndrome type 2A.

Intellia Therapeutics

Intellia Therapeutics' lead program targets amyloid transthyretin (ATTR) amyloidosis. Intellia and partner Regeneron are in the latter stages of testing the gene-editing therapy in non-human primates. Another program is at a similar point in development -- the use of gene editing in hematopoietic stem cells, the stem cells from which all of the various types of blood cells originate. Novartis is collaborating with Intellia on this program.

Intellia also has several pre-clinical programs in its pipeline targeting genetic diseases including AATD and primary hyperoxaluria type 1. In addition, the biotech partners with Novartis to develop CAR-T therapies using CRISPR to engineer T cells to fight disease. 

Sangamo Therapeutics

Sangamo Therapeutics uses ZFN for gene editing. The biotech currently has several gene-editing programs in clinical development targeting hemophilia B, mucopolysaccharidosis type I (MPS I), and mucopolysaccharidosis type II (MPS II), which are rare genetic diseases that result in impaired physical and mental development. Two of Sangamo's gene-editing programs are in pre-clinical testing, one targeting Huntington's disease with Shire as a partner and the other targeting neurodegenerative diseases associated with tau protein aggregation, including Alzheimer's disease.

The company is also working with Pfizer on developing a gene therapy for treating hemophilia A. (Gene therapies insert a gene into cells to correct genetic disorders rather than edit the genes.) Sangamo and Bioverativ, which was acquired by Sanofi in January, are developing gene therapies for treating beta-thalassemia and sickle cell disease. In addition, Gilead Sciences recently announced a partnership with Sangamo to develop gene therapies. 

Gene editing patent battles

You might have noticed that three of these four biotechs use CRISPR. Editas Medicine owns the license to patents for CRISPR from the Broad Institute and Harvard College for any indications it targets, while CRISPR Therapeutics and Intellia Therapeutics licensed patents from the University of California, Berkley (UCB). The Broad Institute and UCB have been fighting each other over their CRISPR patents.

The Broad Institute won a big victory in the U.S. in 2017. The U.S. Patent and Trademark Office ruled that its patents for use in eukaryotic cells (cells that have a nucleus, including all human cells) were valid. However, UCB is appealing this decision in federal court.

In Europe, though, the Broad Institute lost earlier this year in a patent case, with the European Patent Office revoking one of the organization's key CRISPR patents. The Broad Institute maintains that this decision was made based on a "technical formality" and is appealing the ruling.

These CRISPR patent battles don't directly affect Sangamo, although the ongoing disputes could be helping the biotech attract partnerships from big players. The losers of the patent disputes won't be blocked from developing their gene-editing programs, but they would likely have to pay royalties on any sales of their therapies.   

Risks of investing in gene editing

There are four major types of risks associated with investing in gene editing stocks.

1. Risks of problems specific to gene editing

Gene editing is still a new technology, especially use of CRISPR. Two issues have been raised already with CRISPR. One was that the technique known as CRISPR-Cas9 resulted in unintended gene mutations in DNA sequences that weren't targeted. Another issue is that human immune responses to the Cas9 enzyme could interfere with CRISPR-Cas9 gene editing in humans.

The first issue turned out to be no problem at all. Initial research pointing to unintended mutations was simply wrong. However, the second issue could be more serious. The bacteria with enzymes used in CRISPR gene editing have lived in humans for a long time. During that time, humans developed immune responses to the bacteria. CRISPR might not be effective because of these immune responses.

However, there are potential workarounds, including using bacteria that don't infect humans and modifying the human immune system so it won't immediately attack the enzymes. In addition, the ex vivo programs begin developed by the CRISPR-focused biotechs wouldn't be negatively impacted by this potential immune response issue.

It's still early, though. There remains a possibility that more issues with gene editing could be identified. There's also a chance that even better approaches for gene editing are developed, making CRISPR, ZFN, and TALEN obsolete.

2. Risks with pipeline advancement that all biotechs face

The drug development process is inherently risky. This is something that all biotechs face -- not just ones focusing on gene editing. After an experimental drug is discovered as a potential treatment for an indication, it goes through preclinical testing in animals. Only after successful pre-clinical testing can drugmakers obtain government approval for testing in humans.

There are usually three phases of clinical testing. Phase 1 focuses on evaluating the safety of a drug and usually involves a small number of patients. If phase 1 goes well, more patients are included in phase 2 clinical studies, which assess the efficacy of the drug -- but safety is also an important consideration.

After succeeding in phase 2 studies, a few drugs that target serious conditions with a significant unmet medical need can obtain regulatory approval for marketing. Most drugs, however, must advance to phase 3 studies. Phase 3 studies are significantly larger, take a longer period of time (typically between one and four years), and evaluate efficacy as well as identify potential adverse reactions. If a drug is found to be safe and effective in phase 3 studies, it can win regulatory approval. 

Drugs fall by the wayside at every step in this process. Fewer than one in 10 pipeline candidates make it all the way from phase 1 testing to FDA approval.

3. Risks with payers

Does a drug that jumps through all the hoops of the development process and wins FDA approval have it made? Not necessarily. There remains the challenge of getting paid for the drug.

In the U.S., drugmakers must negotiate with health insurers and pharmacy benefits managers (PBMs) to have their products covered for reimbursement. Medicaid pays the lowest price agreed upon with private payers, but individual states can negotiate for even lower prices. Medicare pays prices negotiated between drugmakers and private payers. In Europe, drugmakers negotiate reimbursement and pricing on a country-by-country basis.

There is a real risk that payers might not cover a new drug. Drugmakers also might find that they can't get the price they would like for a drug. Even if a drug is covered by health insurers and PBMs and is reimbursed at a price that satisfies drugmakers, payers can still put hurdles in the way such as requiring patients to obtain prior authorization before using a drug.

4. Risks of dilution

CRISPR Therapeutics, Editas, Intellia, and Sangamo have no products on the market to generate revenue. Any or all of these biotechs could need to raise more money down the road by issuing more stock. This causes the dilution of the value of existing shares.

The bad news from dilution is that it's likely to cause the stock prices to drop. The good news is that the companies are able to bring in more cash to fund operations. 

It's early, but the potential is huge

Investing is all about taking on risk in the hopes of generating solid returns. The biotechs that are pioneering gene editing certainly have risks, as we just saw. However, they also could generate tremendous returns over the long run.

There aren't many technologies that come along that can truly be called game changers. Gene editing, though, fits the description. Less than 5% of monogenic diseases have approved treatments. Many of the biotechs that do have approved drugs for treating these genetic diseases generate billions of dollars in revenue each year. It's still early for gene editing, but the potential profits for investors willing to take on the risks are huge.