Shares of gene-editing specialist Editas Medicine (EDIT 15.57%) are falling sharply on Friday and were down by 16.7% as of 2:02 p.m. EDT. The company did not report any news, but these losses are probably a result of bearish commentary from a Wall Street analyst.
Goldman Sachs analyst Madhu Kumar initiated coverage of Editas Medicine with a sell rating Friday. The analyst also gave the stock a price target of $20. Editas Medicine's share price as of the closing of business day yesterday was $40.98. And even after today's sell-off, Editas Medicine stock is priced at $34.21 (as of this writing), which means there remains a sizable downside for the biotech if we go by Kumar's price target.
One reason behind the analyst's bearish sentiment is Editas Medicine's EDIT-101, a potential treatment for a rare eye disease called Leber congenital amaurosis. Initial results do not indicate that EDIT-101 could meaningfully improve patients' vision, according to Kumar. Overall, the analyst thinks the biotech's risk-reward profile is not attractive.
Should investors avoid Editas Medicine following this vote of no-confidence from Kumar? There is no question that the healthcare company has a long, arduous, and volatile road ahead. After all, it will be years before Editas Medicine can even hope to launch a product on the market, and a lot can happen in the meantime.
On the flip side, the company could go on to develop treatments for rare and otherwise difficult to treat illnesses thanks to its gene-editing technology. The success of its programs could translate into market-beating returns in the long run. In other words, Editas Medicine is a high-risk, high-reward play, but that's nothing new. In my view, investors with above-average risk tolerance -- and who are willing to be patient -- should still consider purchasing shares of this biotech stock.