Investing in biotech companies can be risky. Biotechs are often a corporation wrapped around a hypothesis. If the hypothesis works out, riches can follow. But if not, the company can go bankrupt or be sold for pennies after years of frustration.
CRISPR gene editing -- that's short for "clustered regularly interspaced short palindromic repeats" -- has garnered a lot of attention in the past decade. There has also been a ton of investment. CRISPR won a Nobel prize and has been called the discovery of the century. But one of the early pioneers in the field has warning signs that I believe should keep it off investors' radars. Here are three reasons I wouldn't invest in Editas Medicine (EDIT +4.16%).
Image source: Getty mages.
1. It has been slow to deliver meaningful results
When the company first went public in 2016, it pointed to its program to treat a genetic form of blindness -- Leber congenital amaurosis -- as the most advanced. Nearly six years later, it gave investors a first look at the data for its CRISPR-based candidate, EDIT-101. The results were not compelling. Although there were indications of improved sight, only one in five patients showed a significant improvement in vision. And that assessment wasn't based on a standard letter chart test.
Wall Street is losing confidence and it shows in the stock price. It's down more than 80% from the all-time high and has been left in the dust by its CRISPR peers. All have been cut by at least two-thirds from their peak.
In sharp contrast to Editas. Two other CRISPR companies that were early to go public -- CRISPR Therapeutics (CRSP 0.24%) and Intellia Therapeutics (NTLA +1.00%) -- have published significant scientific results and inked lucrative deals with well-established players in the biotech industry.
2. The financial outlook isn't improving
Editas burned $164 million last year. It has raised capital by issuing stock. That has diluted shareholders but has put it on solid ground to keep funding research. It has more than half a billion dollars on its balance sheet.
EDIT Cash from Operations (TTM) data by YCharts
But the cash it has spent so far has yet to produce a commercially viable product. Summing the cash from operations, it has burned $571 million since going public. And it could still be a long, slow grind for shareholders waiting for a product to hit the market. Management recently initiated an arm of the EDIT-101 trial focusing on children. For the adult arm, it does expect to have data later this year for both the mid-dose and high-dose cohort. Objectively positive results could go a long way toward reversing the current sentiment.
3. Turnover at the top
Last week, Editas named Gilmore O'Neill as its new CEO. His will be the third name at the top of the organization in the past three years. He'll have to hire a new chief medical officer. The previous one was fired in February. The company also hired a new chief scientific officer in 2021. That's a lot of new faces in the C-suite. Sometimes that is needed. But it's rarely a sign of a quick turnaround.
Warren Buffett once said there are no called strikes in investing. What he meant was that investors don't have to put money at stake -- as a bull or bear -- for any company. For me, Editas is a company that will be remembered as an early pioneer in the transformation of medicine. But it won't lead the CRSPR revolution. Questionable execution, cash burn, and a top job that can't stay filled suggest looking elsewhere if you want to profit from the future of medicine.
