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Gene Editing Hype
Gene editing has for a while been hailed as the new frontier in medicine. The peak enthusiasm for investors on this topic was in early 2020, with the related stocks having cooled off since. No matter the market sentiment, gene editing is still a big deal for medical and pharmaceutical companies as well as patients and doctors.
Two of the leading firms in the sector are CRISPR Therapeutics and Beam Therapeutics. Which one, if any, should you pick as an investment?
Quick Primer on CRISPR Gene Editing
Many diseases are due to defective genes, leading to non-functional organs or biochemical processes. They are very often difficult to cure diseases. Infectious diseases can be solved by killing pathogens. Other problems can be solved through surgery or drugs. But when the point of failure is in every cell and requires the body to be changed at the DNA level, this is a lot harder.
For a long time, it was believed that the only solution was gene editing at the early embryo stage to solve the problem when there is only one cell or, at most, a few hundred stem cells. Even then, inserting a new, functional gene in defective cells was tricky and prone to failure, as the random entry of the new gene could damage other parts of the genome.
This was until the CRISPR-Cas9 system was discovered. It can be used to target a specific place in the genome. And then to do almost anything molecular biologists want, from knocking out a gene, entirely deleting it, or also editing it. It can also insert, in a controlled fashion, entirely new genetic sequences.
This changed everything. Previous methods were too crude to be efficient or safe for most patients. CRISPR brings molecular biology to the next level, allowing precise and in-vivo gene editing to become repeatable and predictable.
Other techniques have also appeared that promise to be even more laser-focused in their editing than CRISPR (more on that when discussing Beam Therapeutics technology).
CRISPR Therapeutics Technology
One of the founders of CRISPR Therapeutics is Emmanuel Charpentier, the discoverer of CRISPR–Cas9 and the Nobel prize of Chemistry in 2020 for that discovery. So it is safe to assume that the company has a crack team when it comes to the scientific side of CRISPR-based gene editing.
The company was founded in 2013 under the name Inception Genomics and went public in 2016.
Its technology is based on CRISPR-Cas9, allowing for the edition of precisely targeted sections of the genome. It is the most studied CRISPR gene editing technique, even if others exist like CRISPR-Cas12 or Cas13.
Beam Therapeutics Technology
The company was founded in 2017 with a focus on developing the technology of “base editing”. Without going into too deep technical details, it is made of 2 components:
- A CRISPR protein used to target a specific section of the genome’s DNA
- An enzyme able to modify a genetic base, the smallest component of the DNA code, like turning a “C” into a “T” or an “A” into a “G”.
While more precise than previous methods, CRIPSR-Cas9 is still at risk of occasional insertions or deletion of unwanted genetic sequences in the target DNA.
Because it does not use the CRISPR-Cas system to open the DNA double helix, base editing is an even more precise gene editing technique than conventional CRISPR gene editing.
“Many existing gene editing approaches are like ‘scissors’ that cut the genome. Base editors are like ‘pencils’ that enable erasing and rewriting one letter of the genome at a time.” – Giuseppe Ciaramella, President & CSO at Beam Therapeutics
CRISPR Therapeutics has made the most progress on 2 diseases, Beta-thalassemia and sickle cell diseases (SCD).
Both are under clinical trials in collaboration with Vertex. In June 2022, results from a clinical trial revealed that 42/44 patients with thalassemia were free from the need for blood transfusion, with the 2 others requiring a lot less blood transfusion.
No serious adverse event was found for SCD patients. Two thalassemia patients had serious adverse events, which have since been healed.
Overall, the blood therapies using CRISPR-Cas9 seem to be a success, and the safety profile acceptable considering how life-threatening and difficult to live with are the diseases treated. You can learn more about the experience of the cured patient in this podcast interviewing one of the participants in the trial.
Another application of CRISPR Therapeutics' technology is cancer treatment. The idea is to use modified immune system cells to attack cancer cells. Until now, cells from the patient had to be genetically modified, which took several weeks, which often can be too late for a patient's quickly degrading health.
Instead, the company is developing a modified cell that can be manufactured in advance and fit all patients. The method to target the cancer cell is not new, but the possibility to start treatment immediately is. The option to produce a batch of products for hundreds of patients at once is also precious, as it can reduce the complexity and costs of this therapy.
The company currently has 8 candidates in the pipeline, of which 2 already in clinical trials.
CRISPR Therapeutics has also collaborated with the company ViaCyte to improve its product. ViaCyte is aiming to cure type-1 diabetes. This is a disease affecting 8 million people and requiring lifelong treatment with insulin.
The issue with ViaCyte's current design is that it requires a lifetime of immuno-suppression treatments, which come with their own set of risks and issues. This, in turn, drastically reduced the size of ViaCyte's market.
With the help of CRISPR, ViaCyte aims to turn its solution into a lifelong cure for all type-1 diabetes.
Promisingly, the same idea could be used for many other diseases where a specific type of cell needs to be replaced. This could include type-2 diabetes, affecting more than 6% of the world's population, as well as hepatitis, cirrhosis, or other degenerative diseases.
Each of these 3 applications uses the ex-vivo approach of modifying cells in a lab and re-injecting them in the patients. This is not possible for some diseases, for example, muscular or pulmonary diseases. So CRISPR Therapeutics is also trying to modify the cells of the patients directly in the body with so-called “in-vivo” techniques. This either uses viruses as vectors of mRNA techniques not dissimilar to mRNA vaccines.
This is targeting a wide array of diseases, including muscular dystrophia and cystic fibrosis (both in partnership with Regeneron), hemophilia (in partnership with Bayer), and cardiac diseases.
In the long run, CRISPR Therapeutics expects the in-vivo technology to become their flagship product and the center of their commercial strategy, “able to solve 90% of the most prevalent severe monogenic diseases” (see page 35)
Overall, CRISPR therapeutic has made a lot of progress.
It is currently applying to commercialize its blood therapy products, which could concern as many as 30,000 patients in the US and EU. Approval is never a sure thing, but published data last summer of 2022 indicates life-changing efficiency and an acceptable safety profile. Likely, the product could be approved for severe cases at least. This should prove a strong catalyst for the stock as it would be the first product approval for CRISPR Therapeutic.
Further improvement could grow this market to 166,000 patients, or even 450,000 if the in-vivo method proves successful (see the linked presentation page 8).
The cancer treatment trials are still in the early stages, so it is impossible to predict the outcome. Preliminary data have been encouraging.
The diabetes treatments entered trial on the 2nd of February 2022. So, it is too soon to judge it, but results from this trial could be another strong catalyst for the stock in 2023.
Beam Therapeutics is at an earlier stage than CRISPR Therapeutics, with its manufacturing facilities expected to start only in late 2023. It has pretty much the same focuses as CRISPR therapeutics: hematology, oncology, and rarer genetic diseases.
The hematology targets sickle cell disease (BEAM-101 treatment) and is expected by the company to be less risky than “simple” CRISPR-Cas9 therapies. It might also be more efficient, resulting in a higher concentration of the molecule the gene therapy aims to produce.
It also develops the “ESCAPE” technology” (Engineered Stem Cell Antibody Paired Evasion). It could allow for a much gentler and less toxic method than currently used to replace the deficient stem cells in the bone marrow.
Oncology & Rare Diseases
The oncology product (BEAM-201) are promising stronger result than usual gene editing, thanks to the more precise and controlled nature of base editing technology.
The rare disease products (BEAM-301 & 302) focus on liver disease (impair glycogen metabolism) and Alpha-1 Anti-trypsin Deficiency (AATD), which cause liver and lung diseases. Both treatments would be in-vivo treatment.
Clinical studies are just starting. The hematology studies are ramping up in 2023, the oncology studies starting in 2023, and the genetic diseases studies by 2024. It is too early to guess the results, even if in-vitro and animal studies are encouraging.
Financials and Valuation
CRISPR Therapeutics' valuation stands at $4.3B, down from a peak of $13.7B in January 2021.
As the company does not have a commercialized product yet, it is reliant on its cash balance and deals with larger pharmaceutical companies.
For example, it registered $912M of revenue from its collaboration with Vertex in 2021. This can be compared to $438M in R&D spending and $102M in general administrative spending in the same year. With only 500 employees, the company seems rather lean, efficient and focused on innovation.
The company has approximately $2B in cash, which should cover the company's needs up to 2024. It has no significant debt or liabilities beyond current operational liabilities and leases for its manufacturing facilities.
Overall, the company finances are sound, even if it might need to raise more money at one point if its sickle cell disease and thalassemia drugs are not quickly approved. In that respect, the elevated share price of 2021 should have been better utilized to raise funds than risking the current lower valuation.
Beam Therapeutics' valuation stands at $3.4B, down from a peak of $8B in June 2021.
It is similar to CRISPR Therapeutic but is even further from the commercialization stage, at least 1 to 3 years earlier than CRISPR Therapeutics.
It has $1.1B in cash and liquid assets, with no significant debt, only long-term lease and current liabilities.
The last 9 months' income of $40M from collaboration and licensing is dwarfed by the expenses of $65M in general expenses and $225M in R&D.
Overall, Beam Therapeutic finances are riskier, as it has less cash and is less close to generating revenue from its product, with the clinical trials only beginning. Considering clinical trials are also always an expensive endeavor, some dilution of the existing shareholders is almost inevitable. The only possible escape from dilution comes from a deal with Pfizer on liver and muscle diseases, with still more than $700M in financing if Beam reaches future milestones.
Which one to choose?
CRISPR Therapeutics is a safer bet due to products getting close to commercialization, good preliminary clinical trial results, and a larger cash balance. Its first-mover advantage, having been founded by the discoverer of CRISPR-Cas9, is shown in its relative progress. Its deal with ViaCyte also gives it an entry into the massive diabetes market, something hard to replicate for its competitors, as gene editing can help for diabetes only if combined with the patented ViaCyte technology.
Beam Therapeutics is a more speculative stock. Its technology seems more advanced and might be, in time, a serious competitor to CRISPR Therapeutics' product. However, it is yet to be seen if this technological hedge translates into better healthcare or more pricing power. So Beam Therapeutic will be more appealing to people willing to bet that the best technology will win in the end.
Both companies will likely do fine in the long term, as their products in development represent the best chance for gene editing to become a mainstream medical option.
However, Beam Therapeutics's valuation is too close to the one of CRISPR, considering the higher dilution risks, longer time to market (by several years), lower cash balance, and less advanced clinical trials.
Based on this difference, CRISPR seems a better investment option, as for a close enough price, investors get a larger margin of safety and a clearer path to profitability and free cash flow. On top of this, CRISPR Therapeutics also has higher optionality from its presence in the diabetes market.