Is Editas Facing a New Reality in CRISPR Land?

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Editas Medicine Inc. (NASDAQ: EDIT) is one of the biotech and biohealth players that sits on the cusp of new technology and developments for the next major growth phase in health care: CRISPR. Big opportunities in emerging health care companies often come with very bumpy rides. There is also the risk, of course, that there are no assurances that the potential promise and upside will come true in the future. Editas shares were lower after its earnings report, but the main culprit is a delay to the company’s Leber congenital amaurosis (LCA) treatment. This is a rare, degenerative disease in the retina that causes blindness in children.

Editas is not generally a company that should be moving handily on an earnings report. Still, expenses were higher on the research and the operations sides.

The company released an update to its timelines for LCA10 Investigational New Drug application submission. Its new target date for filing the LCA10 program’s new drug application has now moved out to the middle of 2018. The reasons for a delay in the CRISPR cited:

1) to accommodate certain delays in third-party manufacturing of our LCA10 product candidate, and
2) to take full advantage of its newly formed alliance with Allergan.

For the quarter ended March 31, 2017, Editas posted a net loss attributable to its stockholders of $31.1 million, wider than a $17.8 million loss a year earlier. What is happening now is that Editas is spending more in research and development (R&D) and in general expenses.

For higher R&D expenses, Editas spent $19.0 million in the quarter of 2017, compared with $8.9 million a year earlier. The $10.1 million increase was shown to be for the following:

1) the issuance of $5.0 million notes payable to the Broad Institute and Wageningen University (that became issuable under one of its licensing agreements during the first quarter of 2017),
2) $2.3 million more that became due to certain of its licensors in connection with receiving the Allergan upfront payment during the first quarter of 2017,
3) a $1.4 million increase in employee related expenses (excluding stock-based compensation),
4) a $1.1 million increase in process and platform development costs, and
5) a $200,000 increase in stock-based compensation expenses.

Editas showed that its general and administrative (G&A) expenses were $12.3 million for the first quarter of 2017, up from $9.8 million for the same period in 2016. The $2.5 million increase was shown to be for the following reasons:

1) an increase of $1.4 million in stock-based compensation expense,
2) an increase of $1.0 million in employee related expenses,
3) an increase of $0.5 million in contractor consulting fees, and
4) an increase of $0.3 million in other facility-related expenses (partially offset by a decrease of $0.7 million in external IP legal and patent-related fees, including expenses associated with the prosecution and maintenance of patents and patent applications owned or licensed to Editas).

When it comes to the opportunity with Allergan PLC (NYSE: AGN), Editas showed that its agreement is to develop and commercialize ground-breaking medicines for patients with serious eye diseases. The company also outlined what it is entitled to if all goes well.

Editas Medicine is also eligible to receive more than $200 million in milestone payments per optioned product, with more than half of this value for development, approval, and launch milestones, as well as high-single digit royalties on net sales of optioned products, subject to the co-development and co-promotion arrangement.

CRISPR stands for Clustered Regularly Interspaced Short Palindromic Repeats. According to the Broad Institute, these are the hallmark of a bacterial defense system which forms the basis for the popular CRISPR-Cas9 genome editing technology. In the field of genome engineering, CRISPR is often used loosely to refer to the entire CRISPR-Cas9 system, which can be programmed to target specific stretches of genetic code and to edit DNA at precise locations. They further note:

These tools allow researchers to permanently modify genes in living cells and organisms and, in the future, may make it possible to correct mutations at precise locations in the human genome to treat genetic causes of disease. In September 2015, the Zhang lab demonstrated successful harnessing of a different CRISPR system for genome editing, called CRISPR-Cpf1, which has the potential for even simpler and more precise genome engineering.

Editas shares were last seen down 7.6% at $18.49 on 1.14 million shares just after 1:00 p.m. Eastern Time on Tuesday. The average daily volume is almost 1 million shares, and Editas has a 52-week range of $12.43 to $38.25 and it previously had a consensus analyst target price of $41.00.