There's a lot of excitement around the potential for gene-editing stocks because their therapies have the potential to not only treat diseases, but cure them. One such company is Editas Medicine (EDIT +2.64%).
Editas focuses on CRISPR (clustered, regularly interspaced, short palindromic repeats) editing. This allows the biotech company to create molecules that edit DNA. In Editas' case, it usually uses CRISPR ex-vivo editing, meaning it takes cells and edits them outside the body before reinserting them. The clinical-stage company's lead therapy is EDIT-301, a cell therapy to treat severe sickle cell disease (SCD) and transfusion-dependent beta thalassemia (TDT).
The company's stock is down more than 59% over the past year. Here are two reasons to sell this stock and one reason to buy it.
NASDAQ: EDIT
Key Data Points
Reason to sell No. 1: A shallow pipeline facing tough competition
Other than EDIT-301 and its recently paused EDIT-101 (a potential therapy for a rare eye disease called Leber congenital amaurosis 10), Editas has no named therapies in its pipeline. It is working on hematopoietic stem cell (HSC) transplantation preconditioning and in-vivo HSC editing.
EDIT-301 is in a phase 1/2 trial to treat severe SCD, and the company said it expects to have an update on the trial results by the middle of the year. The therapy also just began a phase 1 trial to treat TDT, and the company said it should have results on that trial by the end of the year.
The problem for Editas is that another CRISPR editing therapy -- exa-cel, developed by Vertex Pharmaceuticals and CRISPR Therapeutics -- is likely to get to the finish line a lot sooner and has been very effective in trials as a one-dose curative therapy for both maladies. The companies have said they expect to complete the rolling submission of their biologics license application (BLA) to the U.S. Food and Drug Administration (FDA) by the end of this first quarter.
Reason to sell No. 2: Not enough cash
Developing gene-editing therapies is expensive. The company's pipeline of therapies targets a multitude of diseases, including sickle cell anemia, beta-thalassemia, and Duchenne muscular dystrophy. To get those therapies to market will take years of trials.
The difficulty I see with Editas is that it's in a weak cash position. As of the fourth quarter, it had $437 million, down from about $620 million a year ago. While Editas has some collaboration revenue, it isn't keeping pace with the company's expenses.
In 2022, the company reported collaboration and research and development revenue of $19.7 million, down from $25.5 million in 2021. It also said it had a net loss of $220.4 million, or $3.21 a share, in 2022, whereas it had $192.5 million in net losses in 2021, or $2.85 a share.
The company said it has enough cash and cash equivalents to fund operations and capital expenditures into 2025. Looking past that, the company will either need to start seeing revenue from its therapies, go into more debt, sell more stock, or sell some of its creative properties, and investors won't see the last three options as good news.
On Jan. 19, Editas entered into a definitive agreement to sell its INK cell franchise to private biopharmaceutical company Shoreline Biosciences. The sale included pipeline drug EDIT-202, along with related manufacturing technologies for an undisclosed upfront payment in addition to future milestone and royalty payments. EDIT-202 had shown potential to treat solid tumors.
Considering the company's low cash position, the move made sense, but it also shows how tight the company's finances are that it is selling off portions of its pipeline to have enough funds to develop the rest of its pipeline.
Reason to buy: The science will sell
Despite Editas' tough financial situation, the company's potential to affect the biotechnology industry is huge. Its expertise allows for high-precision editing to guide RNA design and chemistry. Its core science will allow it to develop therapies that treat diseases caused by single-gene mutations, of which there are more than 7,000, according to the Cleveland Clinic.
It's important to note that CRISPR gene editing is only a decade old and Editas is on the ground floor of this breakthrough technology. There's a lot of potential growth in CRISPR editing in general because it changes the paradigm for therapies -- from helping manage diseases to potentially curing them. While most of the focus so far has been on blood diseases, the technology has applications for cancer and, in time, even more complicated conditions such as heart disease.
Editas Medicine has partnerships with major pharmaceutical companies, such as Bristol Myers Squibb and Immatics, and those partnerships should help the company develop potentially lucrative oncology therapies. Those partners could also be potential buyers of Editas, and a buyout would mean a big payday for current shareholders.
