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Why Editas Medicine Is Sinking Today

By Keith Speights - Dec 21, 2018 at 11:37AM

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The biotech's CFO's departure surprised investors.

What happened

Shares of Editas Medicine ( EDIT -1.68% ) have sunk 11.9% as of 11:25 a.m. EST on Friday. The biotech announced before the market opened that its chief financial officer, Andrew Hack, was leaving the company.

Hack joined Editas in 2015 as CFO after serving as a portfolio manager with Millennium Management, where he ran a fund focused on biotech, pharmaceutical, and medical device companies. Editas announced in its press release that Hack was returning to the investment industry. The company is now searching for a new CFO.

Large image of DNA helix with physician standing behind it holding his finger up to a strand with a bright light appearing on it

Image source: Getty Images.

So what

Some investors believe that when a CFO leaves, it's time to sell the stock. That appears to be the view that some shareholders are taking with Editas, creating downward pressure on the biotech's share price. 

There are good reasons to sell a stock. It's possible that a CFO departure could relate to one of those -- the original reason you bought the stock no longer holds true. CFOs sometimes leave because of a scandal. If you weren't aware of the underlying issues behind the scandal when you bought the stock, selling your shares could make sense.

But there is no reason at this point to think Andrew Hack is stepping down from Editas Medicine because of a scandal. Hack isn't actually leaving the company until March 1, 2019. Editas CEO Katrine Bosley stated that the biotech will work with him on a "smooth transition" as it looks for a new CFO.

Sure, companies can and do try to spin things as positively as they can. This doesn't sound, look, or smell as if something worrisome is going on, though. 

For what it's worth, Hack himself said that the FDA's acceptance of Editas's submission to begin clinical studies of lead candidate EDIT-101 presents "a natural transition point" for the changing of the guard. He's right that the company is about to shift into a much different gear as it becomes a clinical-stage biotech rather than merely a preclinical-stage biotech.  

Now what

If there's more behind Hack's departure that should cause alarm for investors, it's likely to come out soon. Again, I don't think this will happen. 

The most important next move for Editas Medicine is to begin its phase 1/2 clinical study evaluating CRISPR gene editing therapy EDIT-101 in treating Leber congenital amaurosis type 10 (LCA10), the leading cause of childhood blindness. Editas and partner Allergan expect to enroll between 10 and 20 patients in the study.

It's still really early for Editas, with no guarantee of success. More risk-averse investors will be better off staying away from the stock.

However, I think that aggressive investors shouldn't be scared by the biotech's CFO departure. The sell-off today presents a buying opportunity for investors willing to roll the dice on the long-term potential of Editas's CRISPR technology. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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