CRSP - Intellia Therapeutics: Top Speculative Trade In The Biotech Space

Summary

• NTLA offers investors a unique opportunity to buy into an up-and-coming biotech company with impressive clinical data and the potential for future growth.
• Management continues executing their plan to respond to the confluence of events that alienated shareholders and pushed down valuations.
• With a beta of 2, NTLA offers an excellent opportunity for those seeking to capitalize on a potential market rebound.

Investment Thesis

Every industry, except for the energy sector, saw a market decline this year. There is no magic bullet to navigating the current climate, and your risk tolerance should guide your decision on what to trade. The two-year treasury yield offers a 4.3% annual return, so you could park your cash there until the storm passes. Or, if you'd like to take more risk, you could look for potential capital returns in equity. Mid-cap growth and consumer discretionary markets have been struck the hardest in recent quarters. In my view, these two sectors have the highest chance of springing back up once market disturbances have subsided. On the other hand, if inflation remains out of control or if a recession materializes, they will likely continue underperforming the market.

Between these two extremes lies the opportunity of Intellia ( NTLA ). Shares fell more than 50% this year as a hawkish Fed sparked a risk-off market sentiment amid rising inflation. In addition to the macroeconomic component, NTLA has been hit by a confluence of events that alienated shareholders and pushed down valuations, rendering this a potentially profitable buy. After bluebird ( BLUE ) failed to persuade European state payers to pay for its therapies, doubts were put on the commercial potential of one-time gene therapies for rare diseases, such as those being developed by NTLA. The Cas9 protein patent dispute between Harvard/MIT and UC Berkeley is an additional obstacle to commercialization. Moreover, despite the widespread interest in CRISPR technology, most current applications have been restricted to the treatment of classic targets such as blood and eyes, with NTLA adding liver tissue to the mix. Finally, one can't disregard the competitive dynamics reflected in the emergence of novel gene-editing techniques beyond CRISPR/Cas9. In the following paragraphs, we explore these dynamics focusing on NTLA's tactical responses to these difficulties.

Commercialization

Many investors think that the clinical success of new medicines guarantees financial riches, and this couldn't be further from the truth. Clinical success is a key measure of how well a new therapy works, but it's only one part of the equation. Success also depends on the economics of bringing a new treatment to market. The commercial success of any drug depends on the number of physicians prescribing the medicines, which depends on the number of patients (disease prevalence) willing to pay for the therapy. This, in turn, is a function of coverage decisions by third-party payors, influenced by factors such as drug price and clinical efficacy.

BLUE learned this the hard way when European states refused to cover Zynteglo, its Sickle Cell Disease "SCD" and b-thalassemia medicine. Problems with BLUE are similar to those one could anticipate for NTLA, which, incidentally, collaborates with Novartis on an SCD/b-thal project (OTQ923/HIX763). It would be interesting to see how NTLA will price its ATTR drug, with only 50,000 patients globally. There exist some not-so-ideal alternative medications for ATTR. Tegsedi is priced at $8,600 per injection, and Onpattro costs around $10,313 for a 5ml supply. However, these RNA medicines are both life-long treatments, requiring weekly and bi-weekly administration, with costs accumulating to $450,000 annually, providing Ionis Pharmaceuticals ( IONS ) and Alnylam Pharmaceuticals ( ALNY ) with a lucrative recurring stream of income. This business model is not available to the likes of BLUE and NTLA, whose gene-editing therapies are one-time treatments. Regulators in Europe seem to focus on the liquidity of their national healthcare systems, refusing to pay larger lump sums for one-time therapies, even if they offer more value in the long run compared to current standards of care.

One consolation is that CRISPR is much less expensive to develop and manufacture than other gene-editing technologies. CRISPR do-it-yourself kits are sold to the public for as little as $39, allowing gene editing business to come about, including this one featured in the Netflix documentary, Unnatural Selection. BLUE bird's pipeline is a fraction of NTLA, yet, it accumulated net losses of $4 billion, compared to NTLA, which hasn't passed the $1 billion loss mark yet.

NTLA is also focusing its CAR-T platform on developing allogeneic CAR-T therapies as opposed to the five autologous CAR-T treatments currently on the market, namely Kymriah and Yescarta, Tecartus, Breyanzi, and Abecma. Allogenic therapies are off-the-shelf medicines, allowing for mass production. In contrast, autologous medicines are custom-made for each patient, requiring expensive preparations and complex logistics, especially for patients living away from company labs.

Our allogeneic platform is a technology that already underpins the recent collaborations with AvenCell and Kyverna and our wholly owned NTLA-6001 candidate - NTLA Q2 2022 Earnings Call

I believe this will give NTLA some flexibility regarding pricing. CRISPR Therapeutics ( CRSP ) is the canary in the mine, with its SCD therapy now nearing authorization in Europe, a critical market for Beta Thalassemia, as discussed in previous article .

Competition and Tech Landscape

During the Q2 earnings call, NTLA's chief scientific officer alluded to important competitive dynamics that are easy to miss among all the noise related to Broad Institute of MIT and Harvard/CVC (University of California, University of Vienna, and Emmanuelle Charpentier) patent dispute. We'll discuss this in a moment, but we also want to highlight emerging gene editing technologies that are changing the industry. These dynamics are manifested in NTLA's recent acquisition of Rewrite Therapeutics earlier this year for nearly $200 million, a considerable amount for a development-stage company seeking to retain as much cash as possible to push on its R&D activities. During Q2 earnings call, the company's CSO stated:

We really want to be unlimited by the gene editing modality as well as the delivery modality

One should also give credit to NTLA for expanding its gene editing targets beyond blood and eyes, two popular targets among its peers. As mentioned in previous articles , these peers seem to take the safe route, following in the footsteps of what I call "first-generation" gene-editing companies like Spark Therapeutics (now part of Roche) and BLUE, which have used the same gene biomarkers in blood and eyes for a long time. Have you ever wondered why almost all gene editing companies have a Beta Thalassemia program? It is not because of the commercial potential of a b-thal therapy but rather due to the high chances of clinical success derived from the availability of scientific literature needed to navigate through the FDA approval process.

Finally, the patent issue is still ongoing, but it's important to remember that European courts awarded the CRISPR/Cas9 to CVC, who in turn licenses the CRISPR tech to NTLA. Despite The Broad Institute's defeat in the United States, the potential for cross-licensing between the two academic research powerhouses is still undeniable in light of the rarity of diseases targeted by gene biotechs.

In summary, despite the challenges facing NTLA, I believe there is an opportunity for aggressive shareholders looking to capitalize on market rebound prospects.

Summary

The "gene revolution" thematic trade has been disappointing this year, primarily due to challenging economic conditions and industry-specific concerns, including patent disputes, platform concentration in blood and ocular biomarkers, and commercialization challenges of rare diseases. These challenges alienated many investors, contributing to NTLA's underperformance in the past few months compared to other growth companies.

Despite this, I have faith that NTLA has and will continue to make necessary adjustments to its tactical and strategic approaches in order to triumph over these obstacles. This year, the firm bought Rewrite Genomics to prepare for the outcomes of emerging technologies like Gene Writing . The company has shown technological superiority to match the strength of its pipeline by extending its platform beyond conventional gene biomarkers into liver cells.

The company ended the second quarter with nearly $900 million in cash and marketable securities, enough for a couple of years, reducing the need to raise capital, which would have most likely come from new equity offerings (development-stage biotechs are non-bankable), avoiding unnecessary dilution in this bear market.

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