Editas Medicine Stock: Q3 Update; 2 Clinical Catalysts To Watch (NASDAQ:EDIT)

Investment Thesis

Earlier this year, I wrote an article highlighting Editas Medicine’s (NASDAQ:EDIT) sluggish pace in which it is advancing its drug development programs. Since then, the company has made significant changes to address these issues, namely personnel and strategy changes. In his second earnings call, Gilmore O’Neill, the newly-appointed CEO, owned up to the company’s shortcomings, stressing the strategic focus on speeding up its drug development programs and “double down on clinical execution,” as he stated during yesterday’s earnings call.

Management also addressed the patent landscape and challenges. For those new to EDIT, earlier this year, US courts granted The Broad Institute of MIT and Harvard patent protection for Cas9 CRISPR protein, and by default, to EDIT. However, the European courts ruled in the University of California, the University of Vienna, and Emmanuelle Charpentier’s “CVC” favor, and by default to EDIT’s competitors, Intellia (NTLA), and CRISPR Therapeutics (CRSP), among others. The company alluded to possible patent cross-licensing but also stressed that EDIT-301, its most commercially-viable product uses propriety tech “Cas12”, which is free of any patent disputes.

Management’s candid communication with stakeholders is encouraging, and this improved transparency will help drive shareholder confidence in the long term, increasing the prospects for the company. However, despite these positives, clinical progress remains slow, restricted by regulatory milestone requirements. The company is unlikely to close the gap with its peers, who are far ahead in drug development. As a result, this piece reiterates the hold rating but assigns a positive outlook for the company’s ticker in the near term and acknowledges potential capital gains stemming from two catalysts, as discussed in more detail below.

Leadership stability?

Since my March article, EDIT announced the appointment of Gilmore O’Neill as CEO, who began serving in the role in April of this year. On paper, Mr. O’Neill might precisely be what EDIT needs to accelerate the development of its programs and advance its portfolio of cell therapies toward commercialization. Before joining EDIT, the new CEO served as Chief Medical Officer of Sarepta (SRPT), who I believe, either directly or indirectly, pressured the FDA into approving its therapy for Duchenne muscular dystrophy, benefiting from PR campaigns and patient advocacy groups, despite the drug’s questionable efficacy. The controversy surrounding its DMD treatment continues until this day, as mirrored in the company’s dispute with The Arkansas Department of Human Services, which described the drug as “medically unnecessary.” EDIT could benefit from some of this fiery attitude in pushing its pipeline forward toward clinical testing.

EDIT had four CEOs, CMOs, and three CSOs in the past five years, creating strategic and operational instability, which I believe impacted its clinical progress. It’s no wonder that investor confidence has been shaken following the recent executive shuffles.

The Race for SCD/B-Thal Medicine

As mentioned above, despite management’s intentions to advance its products as fast as possible, it remains constrained by a cumbersome regulatory process. During the quarter, the company dosed a second patient in its RUBY trial for SCD with EDIT-301, bringing the total number of patients dosed up-to-date to two. The company plans to release safety and efficacy data for patient one and safety-only data for patient two before year-end. Management should meet with the FDA soon to discuss results and obtain the green light for starting a registration clinical study, possibly next year, with multiple patients dosed in parallel, assuming the successful engraftment of the second patient.

The company has potential trial participants ready once it obtains FDA clearance to proceed with the RUBY-SCD study. Their bone marrow cells are already edited and stored in a freezer, ready for dosing. For those new to the company, EDIT-301 is an in-vivo autologous drug, where patient bone marrow cells are harvested from the patient and then infused back into the patient, and the infused edited cells are the therapy. Success in advancing its RUBY study could create a supportive catalyst for the company’s ticker in the short term.

The company targets B-thal using the same drug, given the mechanism of action. EDIT-301 doesn’t cure SCD or B-Thal. Instead, it works by reactivating fetal hemoglobin production to treat disease symptoms. In the case of B-Thal, the company is preparing the first patient to begin dosing in the next few months. I expect a multi-center study to commence in the coming 12- 18 months, pending safety and efficacy results from the first patient.

EDIT-101, the company’s second (and most advanced) clinical-stage program, is intended to treat LCA-10, caused by a mutation in the CEP290 gene that leads to severe and degenerative vision loss at birth and eventual blindness. This month, investors should expect safety and efficacy data from the EDIT-101 study (called Brilliance), where management will determine if efficacy and safety are at levels that warrant a commercially viable product development. If positive, the next phase will be a multi-center phase IIa study to expand upon the successful proof of concept in the company’s ongoing Phase I/IIa clinical trial.

Commercial Prospects

High management turnover hurts the company’s drug development programs, and EDIT is far behind its peers in targeting the same products. For example, while EDIT is still trying to proceed into parallel dosing clinical trial, CRISPR Therapeutics is preparing to file a Biological License Application “BLA” for its Exa-cel therapy for SCD/B-Thal, the final step before regulatory approval. One advantage of EDIT-301 (SCD/B-Thal) is its broader target market, given the patent landscape. CRSP’s therapy uses Cas9 protein, where US courts granted EDIT (and The Broad Institute) patent protection, as opposed to European courts, which ruled in favor of CVS. Thus, its market will likely be confined to Europe unless CRISPR obtains permission to sell its products to US consumers from EDIT. However, EDIT uses a propriety protein known as asCas12a, which is not subject to any patent disputes, granting EDIT the freedom to commercialize the product in the US and Europe without problems.

The company’s second clinical-stage product, EDIT-101, has low commercial prospects, given the rarity of the disease. Spark Therapeutics, now part of Roche (OTCQX:RHHBY), developed Luxturna in 2018 for LCA-10. However, sales have been disappointing, pushing Roche to write down Luxturna assets. Nonetheless, the company is leveraging its technology and expertise in the ocular arena to develop other drugs, including EDT-102 for UsherSyndrome 2A (USH2A) and EDIT-103 for Dominant Retinitis Pigmentosa (RHO-adRP).

Summary

Investors are looking for two catalysts in the next couple of months: safety and efficacy data from EDIT-301’s first patient and a timeline for progressing to the next stage of development for the EDIT-101 study.

R&D expenses will likely increase, and the company will likely need to issue more equity to fund its clinical study programs. Positive topline clinical data could help the company raise additional capital at attractive valuations to fuel the development of its ocular and hemoglobinopathies pipeline. Nonetheless, given the competitive dynamics, nothing is guaranteed, namely peers with more advanced clinical programs targeting the same diseases.

The new management’s candid approach toward investor communications and better transparency should help alleviate some of the concerns raised by the markets in the past five years. Leadership stability is critical at this stage, given the high management change over the years.