It's fair to say that Editas Medicine (EDIT 1.92%) is an ailing biotech. Over the past three years, its share price has fallen by 83% as it abandoned parts of its pipeline and laid off staff. Despite its supposedly powerful gene-editing technology, the company is struggling to advance its clinical programs to the point where they might be commercialized and generate revenue.
Thankfully for Editas shareholders, Vertex Pharmaceuticals (VRTX -0.06%) just gave the business a much-needed break -- one that might even portend a brighter future for the stock.
More breathing room is always welcome for young biotechs
Per the agreement announced on Dec. 13, Vertex will non-exclusively license Editas' Cas-9 gene-editing technology for its applications in sickle cell disease and beta-thalassemia, a pair of hereditary blood disorders. The license explicitly applies to Vertex's near-curative gene therapy for sickle cell disease, Casgevy, which it developed in collaboration with CRISPR Therapeutics, and which earned Food and Drug Administration (FDA) approval on Dec. 8. The FDA is scheduled to make a decision on Casgevy's approval as a treatment for beta-thalassemia by the end of March.
The licensing deal's financial impact is significant for Editas. Vertex will pay $50 million in cash up front, an additional $50 million after reaching certain undisclosed contingencies, and the potential for between $10 million and $40 million per year in licensing fees from now through 2034, when Editas' patent for the gene-editing technology expires. According to its latest earnings release, at the end of Q3, Editas had $446 million in cash, equivalents, and short-term investments, which management thought was enough to last it through approximately Q3 2025. Now, it expects to be able to keep the lights on through the start of 2026.
It'll need that extra time, but it might not be enough on its own. The biotech has only two clinical-stage candidates -- a gene therapy for sickle cell disease, and a gene therapy for beta-thalassemia. Both are in early-stage clinical trials, and it will be years before regulators might consider them for approval, if they ever do. What's more, even if both its programs get approved for sale, they'll be years behind Vertex and CRISPR Therapeutics' efforts to penetrate the same market. And that's before taking into account the fact that Bluebird Bio is also already commercializing its gene therapies for those same two illnesses. As the therapies produced by all three are intended to provide a functional cure (or nearly so) for the conditions with a single treatment, the market might have shrunk significantly by the time an Editas treatment arrives.
Social proof can be worth a lot, but will it be enough?
The good news for Editas shareholders is that the licensing arrangement with Vertex is an unmistakable signal that the company's peers find its intellectual property to be highly valuable. Or, perhaps Vertex sees its patents as broad and defensible enough that it would be legally risky to develop anything using the same gene-editing technologies without paying the toll first. Either of those explanations would be positive for the prospects of Editas because they both imply that more licensing revenue is likely to be on the way.
Even before signing the deal with Vertex, management was signaling that similar business development arrangements were in the works. In August, Editas entered into a non-exclusive licensing agreement with Vor Biopharma, centered around using its gene-editing methods to develop cell therapy medicines to treat blood cancers. Now, other companies could soon show interest, especially with a powerful player like Vertex Pharmaceuticals publicly leasing the rights to use Editas' IP. That could set the stock up for additional catalyst events over the next couple of years, which would help the company to keep the lights on for longer.
The catch is that Editas' stock is unlikely to be a star performer based on licensing deals alone. They may generate recurring revenue, but few biotechs can survive long term on the basis of their licensing revenue. Without programs backed by strong clinical data and a credible shot at grabbing decent-size shares of their target markets, it will be hard to convince investors to bid up the price of its shares.
Of course, with enough valuable technology, and with enough hustling from the company's business development staff, it might still be possible. But until there's more evidence that such an approach will be sustainable for Editas, investors should only count on licensing deals to provide a trickle of income. Therefore, investors should also expect the stock to remain a risky investment, even if it's a bit less risky now than it was before Vertex signed on.
