It hasn't been a great year to hold shares of somewhat speculative and unprofitable stocks. Gene-editing specialist Editas Medicine (EDIT -2.02%) fits the bill, which is why the company's shares have plunged this year. But things can change quickly in the volatile biotech industry.
Within 12 months, a company can score meaningful clinical or regulatory wins that send its stock price soaring. Could this be what's in store for Editas Medicine in the next year? Let's dig into the company's business to find out.
Pipeline progress will be key
Editas Medicine focuses on developing therapies for illnesses for which there are few (if any) treatment options. The company's leading candidate is EDIT-101, a potential medicine for blindness in patients with Leber congenital amaurosis 10 (LCA10), a rare eye disorder that typically impairs vision from birth. There are no approved treatments for LCA10.
Editas' EDIT-101 has shown promise in clinical trials, but there is a long road ahead before it earns approval. Most recently, the biotech announced data from a phase 1/2 clinical trial for EDIT-101, which has enrolled 14 patients so far. While the therapy's safety profile seems reasonable in the study, only three patients seem to be responding to treatment.
Specifically, these patients met a threshold for improvement in various measures of vision during the trial. Further, two of the three responders share characteristics present in only 300 LCA10 patients in the U.S., decreasing the likely patient population the biotech will target with this therapy. As a result, Editas Medicine decided to pause enrollment in this study while it seeks to find a partner with whom to develop EDIT-101.
That would be a good move. A larger partner would help the company fund the expensive clinical trial process. Editas Medicine ended the third quarter with $478.5 million in cash and equivalents, compared to $657 million as of Q3 2021. It reported a net loss of $55.7 million during the period, worse than the loss of $39.1 million recorded during the prior-year quarter. The biotech estimates that its current cash balance will last into 2024.
But developing EDIT-101 (not to mention other candidates) to completion will take longer than that timeframe. So the company would have to find some way to raise funds before then, and partnering with another drugmaker is not a bad way to do so. Editas Medicine will have to give up some percentage of the rights to EDIT-101.
But it would probably receive an upfront payment and perhaps a royalty deal linked to various milestones in the development and potential eventual marketization of EDIT-101. Editas Medicine could find a partner within a year. After all, gene-editing therapies promise to unlock innovative treatments, something that could attract larger biotechs that have yet to dip their toes in this area.
Editas Medicine does have several other pipeline candidates, including EDIT-301, a potential therapy for sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TDT). The company is enrolling patients in a phase 1/2 trial for EDIT-301 in treating SCD, and it expects to present some data from this study by year end.
The company has also started dosing patients in a phase 1/2 study for EDIT-301 in treating TDT. It will likely deliver some results from this study within the next 12 months. All of Editas Medicine's remaining candidates are even earlier in their development process. The company could make progress with some of those, but in the next year, its stock performance will be affected primarily by the progress of EDIT-101 and EDIT-301.
Does the potential upside outweigh the risks?
The ideal case scenario for Editas Medicine would be to find a partner to help it develop EDIT-101 while delivering solid data from its ongoing studies of EDIT-301 in treating TDT and SCD. However, even if that happens, the company would still be far from earning approval for any candidate.
That would leave Editas Medicine vulnerable to potential clinical or regulatory setbacks -- the typical risks that biotech investors fear. But things could be even worse if Editas Medicine fails to find a partner to develop EDIT-101 with, or if EDIT-301 disappoints in studies. It is also worth noting that Editas Medicine does have some competition.
Small-cap biotech bluebird bio recently earned U.S. approval for a TDT treatment called Zynteglo. Furthermore, CRISPR Therapeutics' exa-cel is a potential therapy for TDT and SCD that could earn regulatory nods in the U.S. and Europe within a year. Of course, the most important thing for treatments isn't necessarily to make it to the market first.
Efficacy is what matters most. But that does not work in Editas Medicine's favor since EDIT-301 has yet to prove effective. That's just one more reason why Editas' stock looks too risky at the moment. Things could change in the next 12 months, but for now there are much more exciting biotech stocks to consider buying.
