In the gene editing therapies space, there aren't any competitors being watched more closely than Vertex Pharmaceuticals (VRTX -0.06%) and CRISPR Therapeutics (CRSP 0.34%). The pair scored regulatory approval in the U.K. on Nov. 16 to market their first gene therapy developed in collaboration and investors have high hopes for a positive commercialization decision by the Food and Drug Administration (FDA) in the U.S. on Friday, Dec. 8.

But according to data described in a scientific journal article published in the middle of November, U.S. regulators may have reason to hesitate rather than grant a full approval. Here's what's going on and what the risks are for shareholders.

New research uncovers troublesome possibilities

The gene therapy candidate made by Vertex and CRISPR Therapeutics is called exa-cel, and it's intended to treat sickle cell disease (SCD), a hereditary blood disorder that causes red blood cells to have a shape that's closer to a waxing crescent moon than their proper and iconic frisbee-like form. The sickle-cell-shaped blood cells become sticky and can cause blood flow issues, leading to pain and organ damage.

To treat sickle cell disease, exa-cel first needs to be manufactured. Rather than being produced from easily procurable precursors, the main raw material for the process is a large sample of the patient's stem cells. A large number of cells is needed because it's inevitable that many will die or become too lethargic to function normally as a result of the manufacturing process.

To get at enough of those cells, they need to be mobilized from their home in the bone marrow using special chemicals and then removed from the patient's bloodstream altogether. Then, they're genetically edited to correct the gene responsible for causing sickling of the patient's red blood cells and reimplanted into the patient a few weeks later. After that, the engineered stem cells spend the rest of their active life multiplying themselves to create daughter cells, some of which then differentiate and become healthy new red blood cells, and some of which remain stem cells doing the same as their parent. The daughter stem cells retain the corrected genes as well as any other mutations they picked up along the way. Therein lies the potential problem.

Per a new paper published in the prestigious journal Nature Medicine on Nov. 16, there is a new risk of treatment that hadn't been characterized before. According to the researchers, patients who had been treated with a gene therapy for sickle cell disease using an approach identical to exa-cel's exhibited a higher-than-expected proportion of stem cells with driver mutations that are associated with developing certain blood cancers. The driver mutations do not guarantee a future cancer diagnosis, only a higher risk burden.

But before rushing to sell shares of the two companies making exa-cel, be aware that this isn't a case of the editing process introducing new problems where there weren't any before. Instead, the researchers think that the earlier part of the process, where the patient's stem cells are mobilized and removed, is involved somehow. They speculate that the cells most likely to survive the roughness of the cell removal, manufacturing, and editing process are those that already have the driver mutations. If that's the case, the gene therapy process could unintentionally be acting as a filter or concentrator that ends up removing the patient's healthy cells, leaving the proportion of cells with dangerous driver mutations intact. Given that the cells pass on the same mutations to their progeny, patients could thus have a much higher risk of developing cancer due to their treatment.

How much should investors worry?

There are a handful of possible scenarios for how this new risk might play out. In the most optimistic scenario, patients don't ever experience any actual negative consequences from the newly identified risks, and regulators quietly accept that as additional evidence of its safety. Until there's firmer evidence to support the contrary, the optimistic case is the most likely to occur, and it would result in the best outcome for all of the stakeholders involved with the companies, including for patients and shareholders.

A mixed scenario is the second most likely. In a mixed outcome, treated patients ultimately retain their newly improved health without mishap, but regulators in the U.S. interpret the possibility of increased cancer risk as a critical question that needs to be addressed comprehensively with a structured inquiry. As a result, either pre- or post-commercialization, they'd demand CRISPR Therapeutics and Vertex do additional studies into the risks so as to confirm that they actually exist, and quantify their likelihood of occurring under real-world conditions. That could easily cost many millions in additional research and development (R&D) fees. The two stocks are all but guaranteed to take a hit in the mixed scenario, though it might not be a large or enduring one.

Then there's the worst-case scenario where patients develop blood cancers at significantly higher-than-anticipated rates, prompting regulators to pull the therapy from the market or dramatically limit its use. This outcome is very unlikely, and there is no evidence suggesting that it will happen. But if it happens, it'll be ruinous for pretty much every party involved and mark a major setback in multiple areas of the gene editing therapy space.

Hope for the best, prepare for the worst

So investors should mentally prepare themselves for the above possibilities to occur. The most important task will be to identify if the mixed scenario is occurring, as it implies that you'll need to brace yourself for some losses. Plus, in the mixed context, falling share prices might actually make for a decent buying opportunity if you want to increase your position. Don't panic and sell your shares if regulators are publicly making stipulations about what they want the companies to investigate. If they're saying that they want certain questions answered with additional research, it means that they're still broadly on board with the therapy being used once their concerns are addressed.