EDIT - Editas Medicine Bolsters Cash Position Amidst Slow And Steady Progress

2023-07-14 17:40:11 ET

Summary

• Editas Medicine reported promising initial results from the EDIT-301 trials for inherited blood disorders, leading to a rating upgrade to "outperform" by Raymond James.
• The company's financial standing was strengthened by a $125 million share offering, which is expected to support its operations and capital expenditures beyond 2025.
• Despite promising initial results, the company faces competition in the gene therapy landscape for sickle cell disease and must continue to provide robust data as trials progress.

Introduction

As a leading clinical-stage firm, Editas Medicine, Inc. ( EDIT ) is advancing gene therapies to combat debilitating conditions. Utilizing enhanced CRISPR-based genome modification techniques, including proprietary adaptations of CRISPR/Cas9 and CRISPR/Cas12a, Editas aspires to revolutionize treatment for over 95% of the human genome, addressing diseases that were once unmanageable or inadequately treated.

In my earlier analysis , I identified Editas Medicine as a frontrunner in gene-editing therapies with the promising outcomes of their RUBY and EDITHAL trials. These trials signal potential for revolutionizing treatment for inherited blood disorders. Additionally, their solid financial standing could provide stability for investors, coupled with FDA's accelerated approval of gene therapies.

However, the competitive and uncertain nature of early-stage clinical development remains a risk. For risk-tolerant, long-term investors, Editas may be a promising addition to their portfolio, despite these risks. I previously advised speculative "Buy" for those interested in biotechnology, due to the transformative potential of gene therapy. Since my recommendation, shares of Editas trade 11% lower.

Let's take a closer look at what has transpired since then.

Recent developments: On June 9th, Editas Medicine announced promising initial safety and effectiveness results from the EDIT-301 trials for inherited blood disorders. In response to the favorable data, particularly for sickle cell disease, Raymond James raised their rating to "outperform" with a $17 target. In mid-June, Editas also priced 12.5M shares at $10, netting ~$125M in proceeds.

Q1 2023 Earnings

Let's first take a look at financials . As of March 31, 2023, Editas Medicine held $401.8 million in cash and equivalents, a decrease from $437.4 million at the end of 2022. These funds are expected to support operations and capital expenditures until 2025. The Q1 2023 net loss was $49.0 million ($0.71 per share), a slight improvement from the $50.5 million loss ($0.74 per share) in Q1 2022. Revenue from collaborations and other R&D activities rose to $9.9 million due to the sale of oncology assets in January 2023. Meanwhile, R&D expenses remained stable, and general and administrative expenses rose to $23.0 million due to increased business development support costs.

Editas' EDIT-301 Shows Promise in Trials

Editas Medicine shared encouraging preliminary safety and efficacy data from its RUBY and EdiTHAL trials for EDIT-301, a gene-editing treatment for sickle cell disease [SCD] and beta thalassemia. The first four SCD patients in the RUBY trial achieved normal hemoglobin levels 5 months post-treatment, and maintained it for 6 to 10 months, while fetal hemoglobin levels remained above 40%. The first patient in the EdiTHAL trial showed a similar response. EDIT-301 was well tolerated, with no serious or treatment-related adverse events. Importantly, all treated RUBY patients have been free of vaso-occlusive events since treatment. Editas aims to treat 20 RUBY patients by year-end.

The ability of EDIT-301 to normalize hemoglobin levels and increase fetal hemoglobin shows its potential to significantly improve the lives of patients with SCD and beta thalassemia. It's encouraging to see no serious adverse events, indicating that the treatment may be safe. The data so far suggest that this could be a game changer for patients with these debilitating diseases. However, we must bear in mind that this is early data, and the trials will need to continue to provide more comprehensive evidence of safety and efficacy.

While these initial results are encouraging, the gene therapy landscape for SCD is poised to be competitive. With multiple players in the field, positioning a new therapy could face challenges. Clinicians and patients may be cautious, as they weigh the benefits and risks of new gene therapies against existing treatments. Also, it's important to acknowledge the high bar set by safety and efficacy, as these therapies involve permanent alterations to the patient's genome. It is, therefore, crucial for Editas and others in this space to continue providing robust, comprehensive, and transparent data as trials progress. Overall, despite the potential resistance, these innovative therapies still hold great promise for revolutionizing treatment for SCD and beta thalassemia.

Editas Bolsters Finances with $125M Share Offering

With the completion of the $125 million share offering, Editas Medicine has strengthened its financial standing considerably. This infusion of capital adds to the $401.8 million in cash and equivalents the company reported at the end of Q1 2023. With these funds, Editas is expected to support its operating expenses and capital expenditures well into 2025.

This financial runway allows Editas to continue its research and development activities, including the further advancement of its EDIT-301 gene-editing treatment. Having ample funding can help the company navigate potential challenges, including the highly competitive landscape of gene therapy for sickle cell disease.

However, it's important to remember that the company is still in a loss-making stage, as is typical for many clinical-stage biotech firms. In Q1 2023, Editas reported a net loss of $49.0 million. Therefore, while the share offering provides additional funds, the company will need to continue managing its burn rate carefully and advance its pipeline to potential profitability.

My Analysis & Recommendation

In summary, Editas Medicine continues to demonstrate significant promise as an innovative player in the gene-editing space, particularly with the early successes of their RUBY and EDITHAL trials using EDIT-301. They've managed to secure a robust financial position, thanks to their recent $125 million share offering, and, now, expect to support their operating expenses and capital expenditures beyond 2025.

However, as with any biotech investment, caution is advised due to the inherent risk associated with clinical-stage companies. The high short interest of 25% suggests a significant skepticism among some investors, potentially due to the competitive landscape of gene therapy for sickle cell disease and the technical and regulatory challenges inherent in gene-editing.

As the company continues to advance its clinical trials, investors should watch for continued positive efficacy and safety data, as well as progress in their development pipeline and the competitive landscape of gene therapy. Management of cash burn and progression towards profitability are also key factors to consider.

Based on the company's current standing and my evaluation of its prospects, I maintain a cautiously optimistic view. My recommendation for those comfortable with the risks of clinical-stage biotech investing remains a speculative "Buy." It's crucial, however, to keep a close eye on developments in the coming months and years. Editas Medicine stands at the frontier of a potentially revolutionary approach to treating previously untreatable diseases, which makes it an exciting, albeit risky, investment prospect.

Risks to Thesis

When the facts change, I change my mind.

There are several risks that could affect my speculative "Buy" recommendation for Editas Medicine. Firstly, while EDIT-301's preliminary trial results are promising, the drug is still in the early stages of clinical development. Clinical trials inherently carry a risk of failure or unexpected adverse events as they progress.

Secondly, gene therapy for sickle cell disease is a competitive field. While Editas' technology may have distinct advantages, other companies are also developing innovative solutions that could become dominant in the market.

Thirdly, regulatory hurdles can pose challenges. While the FDA is supportive of gene therapies, approval isn't guaranteed. The drug must meet stringent safety and efficacy criteria, and the approval process can be lengthy.

Finally, the financial health of the company, despite its recent successful share offering, is another aspect to consider. Editas is currently operating at a loss, which is common for clinical-stage biotech companies, but still it does introduce financial risk.

For further details see: