Hi Jeff, it's really nice to hear from you again. Wishing you and your family peace and happiness. You gave us the go ahead to ask about any of your previous recommendations, so I (and probably many others) am most interested in Editas (NASDAQ: EDIT). [...]
If you could review the company's prospects going forward, especially whether you feel the potential is still as great as you originally thought, I would appreciate it. — Dan F.
Hi Dan, I appreciate you writing in. This is a great topic for us to review and I hope will be beneficial for all subscribers.
I won’t keep anyone in suspense, so before I jump into the details: I remain very bullish regarding Editas’ prospects, despite what’s happening in the public markets right now. Here’s why…
If we remember, Editas is in a unique position in the world of genetic editing. It was the first company using CRISPR genetic editing technology to go public. More importantly, it received an exclusive license to a suite of patents from the Broad Institute (MIT and Harvard).
Worth noting is that Harvard, MIT, and the Broad Institute have almost ten-times the number of patents in genetic editing compared to the University of California Berkeley.
This is worth noting because another company in CRISPR genetic editing, CRISPR Therapeutics (CRSP), received its patent licenses from UC Berkeley…
As long time readers of my research know well, UC Berkeley pursued patent infringement cases against The Broad Institute. They did so in an effort to manipulate the courts and gain control over the most foundational patents related to CRISPR and CRISPR-Cas9 technology.
I predicted very early on that UC Berkeley would lose. It was a greedy money grab by an academic institution. It was even politicized…
There were three scientists at the forefront of CRISPR in the early days: Feng Zhang (Broad/Editas), Jennifer Doudna (UC Berkeley/CRISPR Therapeutics), and Emmanuelle Charpentier (University of Vienna and Max Plank Institute)…
UC Berkeley lost the first patent infringement case — as decided by the US Patent and Trade Office (USPTO) — against the Broad Institute.
UC Berkeley, of course, appealed the decision, despite the ruling.
In 2017, UC Berkeley lost a second time from the Patent Trial and Appeal Board. And again, billions were at stake, so it appealed again. This time to the U.S. Court of Appeals of the Federal Circuit (CAFC).
And in 2018, UC Berkeley lost a third time, ending the patent infringement case all together.
The Broad Institute (MIT and Harvard), and the scientist that developed the foundational patents — Feng Zhang — won… decisively.
That also means that Editas won BIG. As the exclusive holder of these patents that survived three court cases, it holds the foundational patents for CRISPR genetic editing technology.
And yet, in 2020, Doudna and Charpentier won the Nobel Prize for CRISPR. Ridiculous. Even more ridiculous considering that the patent rulings occurred before the Nobel Prize was awarded. At a minimum, Feng Zhang should have received the award, as well.
This is all very important to the investment thesis, because it means that companies who commercialize a CRISPR-based therapy will have to license Editas’ intellectual property.
Said another way, other companies can work with this intellectual property in their laboratories… but the moment that they start selling a therapy, they are going to have to pay the holder of the intellectual property, Editas (NASDAQ: EDIT).
Some companies have been proactive in doing so.
For example, Juno Therapeutics signed a deal worth up to $737 million focused on a specific application — using CAR-T cells to fight cancer. Allergan paid Editas $90 million just to use the intellectual property to target eye diseases (i.e. a limited application). There are many others.
The reason why this is so important is that CRISPR Therapeutics, and the whole industry for that matter, had a breakthrough recently…
Days ago, CRISPR Therapeutics (CRSP) and it partner Vertex announced that the United Kingdom (U.K.) Medicines and Healthcare products Regulatory Agency (MHRA) approved its CRISPR-Cas9 based therapy for the treatment of sickle cell disease (SCD) and transfusion dependent beta thalassemia (TDT).
This is huge. It’s the first CRISPR-based therapy to receive regulatory approval in history. Not surprisingly, CRISPR Therapeutics’ (CRSP) stock price jumped from $38.93 to $71.61 on the news. CRISPR Therapeutics is now worth about $4 billion as a result…
And what no one is writing about is: The reality is that CRISPR Therapeutics MUST license intellectual property from Editas Medicine now in order to sell its CRISPR-Cas9 based therapy.
Now, Editas’ share price did almost double on the news — which is exactly what should happen given the approval of CRISPR Therapeutics therapy in the U.K. — but it remains ridiculously undervalued.
By comparison, Editas’ valuation is currently $467 million compared to CRSP at $4 billion. I’m shaking my head…
Better yet, Editas has $446 million in cash, which gives the company a runway until around the 3rd quarter of 2025.
It is cashed up, with plenty to fund additional research and patents, as well as its therapeutic programs. It is trading basically for its cash value right now, suggesting that its intellectual property has no value at all.
Does that make any sense? No, none at all.
And Editas is making great progress with its EDIT-301 therapy for sickle cell disease and transfusion dependent beta thalassemia.
There is some important news forthcoming about EDIT-301 before the end of the year. But data to date is showing that EDIT-301 has the potential to have a material advantage over CRISPR Therapeutics’ therapy.
There is room for two competitors in this space, and assuming Editas’ therapy is significantly better, it will gain the larger market share and have the advantage of not having to pay another company royalties for intellectual property licensing.
But the reality is: Editas Medicine doesn’t need EDIT-301 to be successful. The company will receive billions in intellectual property licensing fees and royalties from its patents.
This is why I have long maintained that Editas is a prime acquisition target. But I don’t think that it would ever agree to an acquisition offer anywhere near current valuation levels.
The board of Editas knows it is sitting on a gold mine. The company has plenty of cash and can wait for the biotech market to recover, collect its licensing revenues and royalties, and wait for an offer that fairly values its intellectual property portfolio.
What a fantastic setup!
And Dan, back to your conundrum, I am unable to provide any kind of individualized investment advice. But over the years, I’ve always provided the general recommendation to never go “all in” on a single investment.
This general rule of thumb is particularly important for small capitalization and earlier stage companies. No matter how much we believe in the company, there are always things that can happen that are out of our control.
A simple example might be a nefarious government faction wants to “control” genetic editing technology, so it puts in place a regulatory environment that is terrible for the private sector. I don’t think that is going to happen, but if it did under the current environment, I certainly wouldn’t be surprised, either.
All this is to say: It is very important for us to weigh our investments in the context of the risk profile of the company/industry that we’re investing in. Less risky, more conservative investments are suitable to larger allocations. Investments that carry a higher degree of risk are suitable to smaller allocations.
I hope that’s helpful.
