List of authors by last name:
Cui Lang, Ph.D./MBA
Lin Peng, MBA/CPA
Sean Zeng, Ph.D./MBA
Weizheng Zeng, Ph.D.
Qiang Zhu, Ph.D.
Introduction
In recent years, gene-editing technology represented by the CRISPR-Cas platform has brought revolutionary changes to the life sciences industry. People have high hopes for these new technologies in the space of gene editing and gene therapy: scientists, physicians, investors, and government agencies look forward to working together and making a big difference in clinical advancement and aiming to overcome genetic diseases that were previously undruggable. We performed fundamental and financial analysis and summarized the cash flow and stock performance of the following four currently most well-known gene-editing companies: Editas Medicine (Stock ticker: EDIT), Intellia Therapeutics (Stock ticker: NTLA), CRISPR Therapeutics (Stock ticker: CRSP), and Sangamo Therapeutics (Stock ticker: SGMO).
Company Background
EDIT, NTLA, and CRSP were established around 2013, using the latest CRISPR-Cas technology platform; SGMO was established in 1995, using the Zinc Finger Nuclease (ZFN) technology platform. The R&D pipelines of all four companies are still in the clinical trial phases, and no drugs or treatments have been approved to enter the market in the near future. It is worth noting that SGMO is closest to drug approval. SGMO and Pfizer’s hemophilia gene therapy project has now entered phase III clinical trials, and the other three companies are still in phase I/II clinical trials.
All four companies have established partnerships with other biotechnology companies or pharmaceutical corporations through joint ventures or licensing agreements. This trend clearly shows the industry’s expectations for the strong application prospects of gene-editing technology. For example, there is the eye disease treatment pipeline co-developed by EDIT and Abbvie; the collaboration between CRSP and Vertex in muscular dystrophy, thalassemia, and sickle cell disease; and the partnership between NTLA, Regeneron, and Novartis. Particularly, SGMO has already established a broad R&D and business partnership with Sanofi, Pfizer, Takeda, Biogen, Novartis, Gilead, and other first-line pharmaceutical companies. Milestone payments and license payments from these partners have also become the primary source of income for these firms, especially before any new drug approvals.
Clinical pipelines
The R&D pipelines of the above four companies are focused on ex vivo genetically modified cell therapy and direct in vivo gene therapy. In contrast, the main directions of in vitro cell therapy are involved with universal CAR-T (not derived from patients) and genetically modified cell therapy (such as replacement of defective blood cells through outside body genetic modification). Molecular biology methods for in vitro gene modification, such as gene knockout, site mutagenesis, and gene insertion, have achieved high efficiency and are becoming more mature in practice. Consequently, the competition in such a field is intense. We speculate that it is difficult to envision these four companies winning out of the existing in vitro cell therapy battle and stand out from the competition.
In vivo gene therapy, aiming to cure human genetic diseases through repairing the defective genes permanently, will be the future of our therapeutic strategy. Therapeutics that do not directly repair the gene, like antisense oligonucleotide (ASO) technology, are limited to gene silencing or gene modulation and are only effective in a limited period of time. Patients need to receive ASO-based treatment annually for a lifetime. In contrast, gene-editing technology platforms based on ZFN and CRISPR-Cas can achieve much more potent levels of modifications. They completely change the disease genetic codes, either by repairing the disease-causing gene mutation or by introducing new exogenous genes. in vivo genetic modification relies on the direct delivery of nuclease complexes inside of the human body and requires extremely high targeted delivery efficiency and subsequent enzymatic efficiency of protein complexes. Currently, EDIT’s rare eye disease treatment product EDIT-101, SGMO and Pfizer’s hemophilia gene therapy products are indeed in vivo gene therapy projects, which have successfully entered clinical trial phases. It is easy to anticipate that if any of the companies receive approval from the FDA or other regulatory authorities in the field of in vivo gene therapy using CRISPR-Cas or ZFN, it will lead the front wave of the gene-editing sector.
At the technical level, the direct use of CRISPR-Cas for in vivo gene editing is still relatively risky, mainly due to the risk of off-target effect and the immune response (immunogenicity) that may be caused by the expression of bacterial proteins such as Cas in the human body cells. Although there have been some new advances to reduce these two types of risks, most of them are still in the laboratory stage, which is quite far from practical clinical applications. Thus, we are more optimistic about the application of CRISPR-Cas and related technology in clinical diagnosis. These technologies can break the limitations of conventional diagnosis and accelerate the speed of detecting new diseases, but with less clinical uncertainty and a potentially easier path to regulatory approval. At the end of the day, one of the important pieces of the Hippocratic Oath is “First, Do No Harm”.
CRSP’s CTX001 was the first to enter the clinical trial stage as a CRISPR technology-based gene-editing therapy in humans in December 2017. In June 2020, in a phase I/II CLIMB-111 trial for the treatment of transfusion-dependent beta-thalassemia (TDT), CRISPR Therapeutics and Vertex Pharmaceuticals Incorporated jointly announced that CTX001 significantly reduced patients’ dependence on frequent blood transfusions. Before entering the clinical trial, patient number 1 requires 34 units of red blood cells per year, and patient number 2 requires 61 units of blood transfusion per year. After entering the clinical trial, 15 months after a single infusion of CTX001, patient number 1 did not require blood transfusion. After 5 months, patient number 2 also did not require blood transfusion.
(Source of charts and clinical data: CRISPR Therapeutics official website)
Fundamental Analysis
Basic information: Except for SGMO, the other three companies were established around the same time. After nearly 7 years of growth, the company sizes are comparable, but the market value of CRSP far exceeds the other three and seems to be the industry leader.
Stock performance: From the perspective of stock trading, CRSP had the highest increase among the four companies, the most volatility, and the smallest difference between the latest closing price and the 52-week high.
(Stock data as of July 31, 2020)
Profitability: CRSP is the only company that has achieved profitability, and its earnings per share (EPS) far exceeds the other three companies. The substantial increase in CRSP’s revenue of 2019 was mainly derived from the collaboration with Vertex (more than 289 million US dollars). In addition, CRSP’s non-operating income of $20.6M in 2019 was primarily derived from the capital gains of itsmerger with Casebia (also a gene-editing company). Excluding this gain, CRSP’s operating income was actually a loss of $4.13M.
Assets, Liabilities, and Equity: Among the four companies, CRSP has the lowest debt-to-equity ratio, the highest amount of cash held, the best asset liquidity, and the highest book value of equity per share.
Cash Flow: Of these four companies, only CRSP obtains positive cash flow from operating activities. Among the other three companies, SGMO has the highest cash consumption rate (net cash flow from operating activities + capital expenditures), with operating costs of $136M in 2019; EDIT is the lowest with operating expenses in 2019 of $73M USD.
Growth Analysis: Among the four companies, CRSP’s revenue increased the most, with a revenue increase of 21700% in 2019, but all revenue comes from the license agreement with Vertex. 2019 is the company’s first year going from loss to gain, and all its income comes from one single source, indicating a relatively high risk. Also, although EDIT’s revenue has decreased to a certain extent, its earnings before interest, taxes, depreciation, and amortization (EBITDA) have the highest growth rate. This is because EDIT has a higher interest expense ($7.3M in 2019). Without considering the impact of interest, depreciation and amortization, EDIT’s operating profit growth still has strong potential.
During the months when public health events were raging, numerous pharmaceutical and biotech stocks skyrocketed. CRSP is one of the 10 “best performing” biotech stocks. “ValueWalk” uses year-to-date (YTD) percentage change as an indicator, in which Novavax ranks first and CRSP ranks sixth. Obviously, Novavax’s high performance is related to the development of COVID-19 vaccines. However, the rise in CRSP’s stock price should not have much correlation with this health incident, due to the breakthrough progress made by its gene-editing technology in the treatment of blood diseases (discussed above).
(Chart and data source: ValueWalk official website, data as of July 16, 2020)
Conclusions:
It is worth noting that none of these well-known gene-editing companies has established their own stable cash flow (revenue/incomes), mainly relying on milestone and licensing payments streaming from large pharmaceutical companies. Such a business model can be significantly affected by strategic shifts or changes in the research direction from their partners. For example, on August 7, 2020, Abbvie terminated the collaboration with Editas on EDIT-101 (the treatment of rare eye disease Leber Congenital Amaurosis). Meanwhile, on the bright side, the development and advancement of gene-editing technology will definitely continue to create more conceptual ideas and expand the market: on July 30, SGMO and Novartis signed an agreement focusing on neurodevelopmental diseases, with a total amount of 720 million US dollars. For individual investors, it is necessary to control the positions of any above gene-editing company. We will continue to pay attention to this vibrating industry and bring you the latest analysis and insights!