Although equities have performed pretty well in the past three years, many somewhat speculative and unprofitable stocks have struggled as investors have turned their attention away from such corporations. That's the case with Editas Medicine (EDIT 1.92%), a clinical-stage gene editing-focused biotech company.
However, many analysts on Wall Street have high hopes for the stock. Editas Medicine's average price target of $15.64 implies an upside of about 55% over its stock price of $10.06 (as of writing). Can the company hit that goal within the next year? Let's find out.
EDIT Total Return Level data by YCharts.
Multiple catalysts are on the way
Last year was an exciting one in the world of gene editing. Two specialists in this field earned approvals for important candidates. Editas Medicine wasn't one of them, but the biotech did release encouraging data from an ongoing trial for EDIT-301, a potential medicine for transfusion-dependent beta-thalassemia (TDT) and sickle cell disease (SCD), two rare blood disorders.
Editas presented results on 11 SCD patients who were administered EDIT-301, all of whom are free of painful side effects of the disease called vaso-occlusive crises after treatment. Of the six patients with at least five months of follow-up, all have reached normal hemoglobin levels. Hemoglobin is a protein in red blood cells that carries oxygen. SCD patients have abnormal levels of it, leading to distorted, sickle-shaped red blood cells (hence the name of the disease).
Normal levels of this protein post-treatment are a good sign that EDIT-301 is working. EDIT-301's safety profile also seems reasonable. There is more good news. Editas recently reported that the U.S. Food and Drug Administration agrees that its ongoing study for EDIT-301 in treating SCD will be considered a phase 1/2/3 trial. The biotech won't need to conduct another study to support an application for EDIT-301 in this indication, provided the data is positive by the end.
Elsewhere, Editas Medicine has reported strong results in treating TDT patients with EDIT-301. The disease leads to dangerously low levels of hemoglobin. That's why patients need regular blood transfusions. In the study, EDIT-301 helped five TDT patients with more than a month of follow-up achieve hemoglobin levels above the transfusion independence threshold. The biotech plans on releasing more data from both clinical trials this year.
The short-term view and beyond
Positive data readouts should help Editas Medicine's stock move in the right direction. The company's financial position also looks reasonably strong for a clinical-stage biotech. Though it remains unprofitable, Editas' fourth-quarter net loss per share of $0.23 was much better than the net loss per share of $0.88 reported in the year-ago period.
It improved on that front due to its keeping its administrative expenses in check and recording a much higher collaboration revenue. Furthermore, Editas ended the year with $427.1 million in cash, equivalents, and marketable securities. That, together with several more items -- including a payment from a license agreement it recently signed with Vertex Pharmaceuticals (that will allow the latter to use Editas' gene editing technology) -- should help it run its operations until 2026.
With that said, can Editas Medicine meet Wall Street's price target in the next year? My view is that it can. Smaller biotechs can soar by 55% in a year -- sometimes in a single day -- on very strong clinical progress. Editas Medicine should have several data readouts in the next 12 months. I wouldn't put it past the company to achieve this feat. The more important question is whether the biotech is a solid long-term option.
There is no denying Editas Medicine's innovative potential, but there remains far too much risk for most investors. If the company fails to deliver, investors could be left owning worthless shares. It's important to consider that before pulling the trigger. Depending on how things evolve, Editas Medicine could become a much better option in a couple more years. But for now, only those with a high-risk tolerance should even consider initiating a small position in this biotech stock.
