Intellia Therapeutics (NTLA +2.89%), a small-cap biotech company, has some notable bulls. One of them is Cathie Wood, the CEO of Ark Invest. The innovation-focused investment firm has long held shares in Intellia, likely because of its work on potentially disruptive gene-editing technology.
Intellia Therapeutics also has fans on Wall Street. The company's current average price target of $32.3 (according to Yahoo! Finance) implies a significant 131% upside from its current levels. And that's despite a recent setback that sent Intellia Therapeutics' shares down significantly.
Should investors buy the stock at current levels? Let's find out.
Safety issues rock Intellia's prospects
Intellia Therapeutics focuses on developing therapies for rare diseases. The company has two products in clinical trials, both CRISPR-based medicines. One of them is Lonvo-z, being developed to treat hereditary angioedema (HAE), a genetic disease that causes unpredictable episodes of swelling.
Lonvo-z could be a onetime cure for this condition. And as an in vivo gene-editing therapy, it avoids the complex cell collection and editing process that often makes ex vivo therapies so challenging to administer.
Lonvo-z performed well in early-stage studies and is now in a phase 3 clinical trial, with data from this study and a potential regulatory submission expected next year.
Image source: Getty Images.
Then there is nex-z, a medicine Intellia Therapeutics is developing in collaboration with Regeneron Pharmaceuticals. The partners hope that nex-z can treat transthyretin (ATTR) amyloidosis, a disease caused by a dangerous buildup of the transthyretin protein in the body (in the heart or around certain organs). This can lead to a range of health problems, such as cardiomyopathy, or when the heart can't properly pump blood, and polyneuropathy, or peripheral nerve damage.
Nex-z is undergoing two phase 3 studies: one in patients with ATTR amyloidosis and cardiomyopathy, and the other targeting patients with polyneuropathy. However, the company recently announced it had to pause these clinical trials because one patient suffered from significant liver damage. The patient has not died and is being treated, but this raises serious questions about whether nex-z is safe and will ever earn regulatory approval.
That's why Intellia Therapeutics' shares plunged by more than 45%. Can the stock bounce back?
The risks remain incredibly high
First, let's look at the potential commercial opportunity for Intellia Therapeutics' two leading candidates, putting aside the company's recent clinical setback.
The biotech company estimates that about 150,000 patients have HAE. Given the few treatment options available for the medicine, Lonvo-z could be a hit. In fact, Intellia Therapeutics thinks Lonvo-z could generate $5 billion in sales by 2028. Yet, this opportunity pales in comparison to the impressive heights nex-z could reach.
Intellia estimates a worldwide patient population between 250,000 and 500,000 people for ATTR amyloidosis, and the drugmaker thinks nex-z could rack up a whopping $12 billion in sales by 2028.
NASDAQ: NTLA
Key Data Points
If these therapies come anywhere close to these projections, buying shares of Intellia Therapeutics today will lead to monster returns over the next three years. However, let's pump the brakes for a moment.
First, Intellia Therapeutics' projected sales for these medicines are almost certainly far too optimistic, even if they are approved. One reason is that gene editing medicines aren't cheap, and it hasn't always been easy to get third-party payers on board to cover them for patients. And given their high price tags, they are inaccessible to the overwhelming majority of patients without insurance coverage.
Second, we have to wonder if these therapies will ever even see the light of day outside the clinic, especially given the recent setback. It's a reminder of the risk involved in investing in clinical-stage biotech companies.
With all that said, should investors still consider buying Intellia Therapeutics' shares?
On the one hand, the stock will skyrocket from its current levels if the biotech can work through its safety issues with nex-z, still get approval for it and Lonvo-z, and generate even decent sales from these products. On the other, the recent drop might be the beginning. If nex-z's safety issues persist, the stock could drop even more, even if it makes progress with Lonvo-z.
In other words, this is a stock only risk-tolerant investors should even consider initiating a position in, and even then, it's best to start (very) small.
