Stocks tied to CRISPR technology took a hit on Monday after Swedish scientists highlighted a disturbing link between the gene-editing technology and cancer. Sooner or later, just about everything gets accused of causing cancer, but the latest allegation was backed up by similar observations a Novartis (NYSE:NVS)-backed paper highlighted last summer.
Shares of Intellia Therapeutics (NASDAQ:NTLA) and Editas Medicine (NASDAQ:EDIT) skidded lower and CRISPR Therapeutics AG (NASDAQ:CRSP) fell hardest, possibly due to simple name recognition. Should investors really be this worried? Here's what you need to know.
Why it looks like CRISPR's in a pickle
This isn't the first time that these stocks fell following some scary news. This time's a little different, though, because two separate laboratories have noticed the same problem. When replacing inherited mutations with functional copies, cells that lack a tumor suppressor protein called p53 survive the process a lot more often than ones that don't.
Last July, Novartis noticed that stem cells poorly tolerate the gene-swapping process, but they could increase gene-insertion success 15-fold by inhibiting p53 activity. More recently, a team from Sweden noticed a similar issue in retina cells.
In a sense, it looks like CRISPR-Cas9 based treatments that rely on correcting genes need to send cells' natural security guards on a permanent vacation. That could be a huge problem because a lack of p53 activity is strongly associated with plenty of aggressive cancers, which makes sense given its role in DNA repair.
Why p53 isn't a major problem now
The tumor suppressor protein tries to cut out inserted genes, but most of the drugs these companies are developing take a relatively simple disruptive approach. Editas' lead program, EDIT-101 for the treatment of Leber Congenital Amaurosis snips out a little section of DNA that allows a sight-related gene to be expressed normally, but it doesn't add anything. Intellia and its partner Regeneron (NASDAQ:REGN) intend to disrupt the production of transthyretin by snipping out a section of DNA without replacing anything either.
CRISPR Therapeutics AG expects to begin clinical trials in Europe with a beta-thalassemia candidate that also snips but doesn't replace. Although p53 issues probably won't impede CTX001's progress, it could hinder the lead program in the company's immuno-oncology portfolio.
Perhaps the most important program in CRISPR Therapeutics' pipeline right now is an experimental chimeric antigen receptor t-cell (CAR-T) therapy aimed at blood cancers that could solve a big problem this emerging class of treatments presents. CAR-T therapies Yescarta and Kymriah are manufactured in single batches for each patient at great expense, but CRISPR's CTX101 takes a one-size-fits-all approach that could make it a blockbuster drug.
To make CTX101, CRISPR needs to insert genes into the DNA of t-cells. Although this is the sort of insertion that p53 likes to excise, it's hard to see how an infusion of t-cells lacking p53 function would significantly raise a persons' risk of developing another malignancy down the road. At worst, I imagine a concerned FDA might require proof of a long-term overall survival benefit before approving a CRISPR-based cancer therapy that relies on gene insertions, as opposed to shorter pathways often available to breakthrough treatments.
A great stock for roller-coaster fans
It seems silly to worry about future limitations to CRISPR-based drugs before we know what happens when they're given to people. Until we do, though, expect more erratic price swings tied to Petri dish observations that wouldn't budge most biotech stocks.
Precommercial biotech stock valuations are traditionally based on risk-adjusted sales estimates, so a clinical-stage asset with a present value of $2 billion would instead be valued at just $1 billion if it has a 50-50 shot at earning approval. From 2000 through 2015, the Food and Drug Administration approved just 9.6% of new drug candidates that began clinical testing, and CTX001 hasn't been cleared to start U.S. trials yet. Given these odds, CRISPR's $2.8 billion market cap at recent prices seems ludicrous.
At recent prices, all three of these companies boast 10-figure market caps supported by lots of enthusiasm but little evidence. That's going to change soon, however. CRISPR Therapeutics AG has its first human proof-of-concept study set to begin in Europe later this year. If results don't meet sky-high expectations, that enthusiasm will fade awfully fast. These stocks are worthy of your attention, but you'd probably be better off watching the excitement from the sidelines until their prices fall back to levels that make sense.