Biotechs specializing in gene editing are making serious strides, but many are still clinical-stage companies. Their lack of consistent revenue and profits has been a turn-off for investors in recent years, which is why many of them have substantially lagged the market in this period.
That's the case with Editas Medicine (EDIT 1.92%), a small-cap gene-editing specialist. However, Editas' shares have been rebounding this year and could maintain that momentum (and then some) well into 2024. Here's why.
An important upcoming data readout
Editas Medicine's pipeline is pretty thin, but the company does have one key candidate called EDIT-301. This investigational gene-editing therapy targets sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT), two rare blood diseases. One reason behind Editas' strong stock market performance this year is that it recorded positive data from an ongoing phase 1/2 clinical trial for EDIT-301 in five patients, including four with SCD and just one with TDT. The data showed serious promise of efficacy.
For example, all four SCD patients were free of vaso-occlusive crises (severe and painful side effects of SCD) following infusion, with between two and 10 months of follow-up. Further, no serious adverse events were reported. While these results won't win Editas Medicine approval yet, the company is gearing up to report even more data in December. On the one hand, some investors might be skeptical here.
There is already an approved gene-editing treatment for TDT in the U.S. called Zynteglo, which was developed by Bluebird Bio. Further, Bluebird could soon earn the green light for the SCD therapy, lovo-cel.
Meanwhile, the team of CRISPR Therapeutics and Vertex Pharmaceuticals is awaiting U.S. approval for exa-cel in both SCD and TDT. Some would argue that EDIT-301, even if it ends up earning approval, will, at best, play second fiddle to these other therapies since it will lack that first-mover advantage. However, what matters most isn't making it to the market first. Safety and efficacy are the most critical factors.
Editas uses a version of the CRISPR gene-editing technique that won its creators a Nobel prize. So does CRISPR Therapeutics (as its name suggests). But Editas' technique results in greater specificity and editing efficiency than the method CRISPR Therapeutics uses, or so the company argues. The point is that Editas Medicine is still developing EDIT-301 because it thinks it could end up proving more effective than either Zynteglo, lovo-cel, or exa-cel.
In addition to the December data readout, the company will continue updating investors on these programs throughout next year. Continuous positive results, especially compared to exa-cel, could send its stock price through the roof next year. After all, Editas Medicine's market capitalization is just under $900 million. But what does all of this mean for investors?
Is Editas Medicine stock a buy?
Although Editas Medicine looks like a promising gene-editing company, there are several factors to remember before even thinking about initiating a position. First, there is funding. Editas ended the third quarter with $446.4 million in cash, equivalents, and marketable securities, compared to $480 million as of June 30.
That's a pretty good amount for a company that size. However, considering it is still some ways away from earning approval for any of its candidates, it will almost certainly have to resort to dilutive means of financing in the meantime. That's even though management thinks its current cash balance should last into the third quarter of 2025.
Issuing additional shares would put downward pressure on its stock price. Second, Editas Medicine could be wrong about EDIT-301 being better than its competitors. And given it will (at best) be late to the party, it could be a bit of a flop. Finally, it could be even worse than that. Perhaps Editas Medicine will uncover that EDIT-301 has serious adverse reactions upon longer follow-up of current patients, or some other clinical issue will rear its ugly head.
Of note, Editas Medicine's EDIT-101, a gene-editing therapy it developed for the treatment of a rare eye disorder called Leber congenital amaurosis 10, had mixed results in an early-stage clinical trial that disrupted the company's prospects with this program. The same thing could happen here. These risks plague relatively small biotech stocks, and if anything of the sort happens again, Editas' shares will drop off a cliff.
In other words, investing in Editas Medicine isn't for the faint of heart. Only those with heightened risk tolerance should consider initiating a position; even then, it should be relatively small.
