What happened

Investors sold CRISPR stocks in May and went away, but had reason to come back in June. Shares of CRISPR Therapeutics (NASDAQ:CRSP) led the gene-editing trio with a gain of 32.4% last month according to data provided by S&P Global Market Intelligence. That was followed by shares of Editas Medicine (NASDAQ:EDIT) and Intellia Therapeutics (NASDAQ:NTLA), which posted monthly gains of 20.4% and 17.9%, respectively. 

It makes sense that CRISPR Therapeutics rose the most in the group: The business further cemented its lead over peers by announcing an expanded research focus with partner Vertex Pharmaceuticals. Meanwhile, Editas Medicine announced that an important asset is moving closer to clinical trials, although the company might be on the losing end of a renewed patent dispute. That could translate to a shot in the arm for Intellia Therapeutics, although it most likely means patents won't matter all that much when the dust settles.

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So what

Last month, Vertex Pharmaceuticals announced it intended to acquire Exonics Therapeutics for a cool $245 million. Once the transaction closes (expected in the third quarter of 2019), CRISPR Therapeutics will be tapped to explore using CRISPR gene editing in Duchenne muscular dystrophy (DMD) and other neuromuscular diseases. That would mark new territory for the therapeutic approach, which has so far been primarily focused on engineering white and red blood cells.

The expanded deal with Vertex could net CRISPR Therapeutics an upfront cash payment of $175 million and the opportunity to earn up to $825 million in future milestone payments, plus royalties. The gene editing pioneer could also choose to forgo future milestones and instead co-develop drug candidates -- and split costs -- for a shot at splitting future revenue 50/50, but it must decide before clinical trials begin. It should have plenty of time to make that decision.

Shortly after that field-altering R&D pact was announced, Editas Medicine revealed that it was conducting activities that will allow it to file an investigational new drug (IND) application for EDIT-301. The asset is taking aim at sickle cell disease and beta thalassemia, which are the two blood disorders being tackled by CTX-001, the drug candidate leading the partnership between Vertex and CRISPR Therapeutics. Editas Medicine's lead drug candidate, EDIT-101, will be investigated as a treatment for a rare eye disease in an upcoming phase 1 trial.

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However, pipeline updates took a backseat to developments on the intellectual property front by the end of June. As investors might recall, there's been controversy over who was first to make CRISPR, derived from prokaryotic bacteria, work in eukaryotic organisms, such as humans. The answer to that question could determine who owns the commercial rights to use the gene editing tool in therapeutic applications. 

While the U.S. Court of Appeals ruled in September 2018 that parties related to the Broad Institute in Boston could keep their original patents, including the foundational patent covering eukaryotic gene editing, the U.S. Patent and Trademark Office (USPTO) announced an interference in late June. That means certain patent applications filed by parties related to the University of California (UC) could be granted that void as many as 13 of the original Broad patents. In other words, everyone is going back to court.

Somewhat surprisingly, all three CRISPR gene editing stocks rose sharply following news that the legal dispute would continue. There's a dizzying web of patent licenses among CRISPR Therapeutics (UC), Editas Medicine (Broad), and Intellia Therapeutics (UC via Caribou). All have since patented discoveries made in addition to the foundational patents involved in the latest dispute. Furthermore, the patents involved in the new legal battle cover a specific cutting enzyme (Cas9), which is no longer the only cutting enzyme available -- nor is CRISPR the only gene editing approach available. That makes it difficult to assess the risks of the patent dispute, but Wall Street hasn't seemed to factor intellectual property considerations into the stocks one way or the other to date.

Now what

The field of gene editing continued to make progress in June. Wall Street appeared to cheer the news that the battle over intellectual property would continue to drag on, perhaps because the continuation of the legal spat pushes the risks further into the future. That could make it easier for companies to snag licenses later when the dust settles, or for a more favorable price (or not at all) should a superior technology emerge in the meantime. Either way, investors are focused on the clinic, which will make or break the direction of CRISPR stocks for the foreseeable future.

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.