My 2 Cents On What Will Determine The Fate Of CRISPR Stocks

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Includes: CRSP, EDIT, NTLA
by: Kareem Khaidi

Summary

This article gives a short comment regarding CRISPR/Cas9 patent dispute and the ruling.

The key challenges regarding CRISPR/Cas technology are also discussed.

Looking beyond patent rights, I explain what will determine the fate of CRISPR stocks.

Comment on USPTO Ruling

Recent ruling by the USPTO causes quite a fuss among those who are following CRISPR/Cas9 technology and the patent dispute. After all, this is the next big thing in biotechnology. The USPTO ruled in favor of Broad Institute with regard to the patent interference in which the count is the use of CRISPR/Cas9 system in eukaryotic organism.

Jennifer Doudna and Feng Zhang are the two main figures behind CRISPR/Cas9 patent dispute.

Image source: STAT News

I knew that the ruling could go both ways. On one hand, we knew that patent interference rulings typically favor the senior party, which in this case is UC Berkeley and University of Vienna. On the other hand, we knew that from the first and only hearing on the case, the judges seemed to indicate that they are not convinced with UCB's argument that Doudna's original claims should also apply to the use of CRISPR/Cas9 in eukaryotes.

While those on the winning side, which includes Broad Institute, Editas Medicine (NASDAQ:EDIT), and Polaris Partners, are popping champagnes, those on the losing side would probably be thinking on how to deal with this huge blow. Intellia (NASDAQ:NTLA) and CRISPR Therapeutics (NASDAQ:CRSP) had already weighed in and listed some options, which include appealing the decision. I would appeal too if I'm in their position.

As a scientist, I am not celebrating the victory of one side over the other. The discovery of CRISPR/Cas9 system in bacteria and its transformation into a technology platform was a concerted effort. But I'm glad that the legal landscape of the technology is now clearer because the patent dispute has been hindering many players from actively using the technology. Hopefully, we'll see rapid advancement in the field in the future.

While this might not be the end of the CRISPR/Cas9 patent battle, it definitely is a big step towards the end. Bets could now be placed more confidently, and it could be placed based on the more important factor that will decide the fates of the CRISPR stocks in the long run. What factor am I talking about?

The Challenges of Using CRISPR/Cas Technology

Generally speaking, there are three key challenges that need to be addressed in order for CRISPR/Cas to be the ultimate gene editing tool. In my humble opinion, how reliably the companies could overcome these challenges is the factor that would decide their fates in the long run. In fact, the progress of the entire gene-editing enterprise is contingent upon either solving these challenges or coming out with new tools to perform gene editing. Without solving these challenges, the adoption of CRISPR/Cas in clinical setting (read: making money and improving healthcare) could seriously be obstructed.

Below, I tried to summarize the challenges in simple words followed by an explanation on how you should make your bet.

1. Off-target editing (Specificity)

This is perhaps the scariest risk with regards to gene editing using CRISPR/Cas or other systems. Off-target editing means that the CRISPR/Cas particle binds and performs editing on sites other than the intended target sites. This is an enormous risk because as any genetic students will tell you, even one wrong editing of a single base pair on the DNA could spell trouble. That one change could be on tumor suppressing genes that if accidentally switched off, could lead to cancer. So, what's the chance of this happening? For CRISPR/Cas9, it has been determined that the binding of the sgRNA (the guiding mechanism) to the target sequence on host DNA could tolerate up to 5 base pairs mismatch!

I don't want to be a fearmonger, but the risk here is real and amplified by the fact that with any gene-editing treatment, ex-vivo or in-vivo, the edits are expected to be done on large cell populations. Also, keep in mind that the edits could be permanent. Controlling the activation of CRISPR/Cas system itself is not easy, because depending on how it is packaged and what delivery vector is used, CRISPR/Cas could be constitutively expressed, meaning that the CRISPR/Cas products will constantly be produced and cannot be turned off, thus increasing the chance of off-target editing. Last but not least, even when the CRISPR/Cas particle binds to the correct site, it could still have the energy to bind to another site, which could be an off-target site.

Additional reading: CRISPR Off-Target Effects

2. Frequency of Edit (Efficiency)

"Editing" the DNA relies on the cell's natural ability to repair broken DNA. There are two mechanisms that are used by the cell to do so, namely, non-homologous end joining (NHEJ) and homology directed repair (HDR). Using NHEJ will result in small insertion or deletion of random sequence on the cut site. Therefore, NHEJ is used to perform "cut and remove" and "cut and revise" editing. But it is very error prone and not precise.

Source: Editas Medicine 10-K

If you want to replace a defective gene with a functioning one, you would want to rely on the HDR mechanism, which allows for incorporation of specific sequence from donor DNA into the host DNA. This is known as "cut and replace" editing. HDR and sgRNA (the guidance system) are the components that make CRISPR/Cas system to be touted as a "precise gene editing" tool.

Source: Editas Medicine 10-K

The problem is that, the cell only uses HDR mechanism when it is dividing. Therefore, the frequency of edits that could be done is limited. In fact, the rate of insertion of the new sequence via HDR is actually very low (0.5-20%).

Additional Reading: Increasing Efficiency of CRISPR/Cas9 Editing

3. Modality and Delivery

Delivering CRISPR/Cas particle is just as big of an issue as the other two challenges. This is especially true when it comes to in-vivo editing. Naturally, what first comes to mind is using virus as vector to shuttle the CRISPR/Cas particle to different organs. There has been a lot of advancement in our capacity to use viral vector in gene therapy and gene editing. But as a student of biotechnology, in many of my classes, I am reminded of the safety issues regarding gene therapy and gene editing. One of the most potent reminders is, of course, the 1999 accident - the first human casualty in gene therapy.

Also, as mentioned previously, depending on the vector, CRISPR/Cas could be expressed constitutively. Among the different types of viruses that are used as viral vector, AAV (adeno-associated virus) is known to cause constitutive expression of nucleases (the enzyme such as Cas9 that cuts the DNA). In high concentration, the risk of off-target editing is of course elevated. Just by looking at the figure below from Editas's website, you could see that there a lot that need to be figured out when it comes to modality and delivery of CRISPR medicine.

Source: Editas Medicine Website

Additional Reading: Delivery of CRISPR/Cas9 for Gene Therapy

Picking Your CRISPR Stocks

Despite the challenges that I have presented, the goal of this article is not to hinder you from investing in CRISPR stocks. But I simply want to provide another side of the story so that you could have a more balanced expectation on the potential of CRISPR/Cas technology, especially with regard to its chance of success in clinical application.

The good news is that the challenges are well recognized by the scientific communities, and efforts are being made to overcome those challenges. In fact, as I emphasized, it is how reliably the companies could overcome these challenges is the factor that would decide their fate in the long run.

For example, researchers are putting a lot of efforts to discover and engineer new type of cas enzymes that possess higher specificity because Cas9 is known to have relatively high off-target editing. Feng Zhang actually discovered Cpf1, which supposedly has higher specificity than Cas9 and could be used in non-dividing cells to increase frequency of edits. As of Dec. 2016, Editas has secured exclusive license from the Broad Institute to use CRISPR/Cpf1.

In addition, other methods were developed to decrease off-target risks, such as by using bioinformatics analysis to design high-specificity sgRNAs and identify the best target sites. Coupled with new technology to detect off-target editing such as GUIDE-Seq developed by people at Editas, the chance of off-target editing could be reduced before pursuing INDA-enabling studies.

As for delivery, efforts are being made to use non-viral vectors such as lipid nano particles (LNPs). In fact this is how Intellia Therapeutics is planning to package CRISPR/Cas9 system to be shuttled to the liver. The company gave a pretty detailed result on its recent corporate presentation.

Source: Intellia Therapeutics' Corporate Presentation

My point here is that, as we move forward, the issue of who owns the right to CRISPR/Cas9 would diminish in importance as researches are now focusing on how to improve the system. Another way to look at it is that, owning the technology is one thing, translating it into revenue is another.

Overcoming the aforementioned challenges is vital if CRISPR/Cas technology is to be used more frequently in clinical settings and become a standard class of medicine along with small molecule drugs, biologics, and etc. The company that pays the most attention to solve the challenges would potentially emerge as the long-run winner.

Hence, when picking your CRISPR stocks, pay attention to preliminary data showing that the company has taken care of specificity, efficiency, and delivery issues since those would factor greatly on the chance of success in clinical trials.

That said, I like both Editas Medicine and Intellia Therapeutics. Looking at Intellia's recent corporate presentation, it seems that the company has solid preliminary results with respect to LNP mediated liver editing using CRISPR/Cas9.

Editas on the other hand has the advantage of having CRISPR/Cpf1 system, which is one of the 24 issued patents in its IP portfolio. Admittedly, Editas's stronger IP position gives them less headache and more room to focus on business execution. The company also presented a sound plan with regard to their key project which is to perform editing to cure Leber Congenital Amaurosis 10 in its initial 10-K filing.

But at this moment, I would wait for NTLA's price to settle and see how the company going to respond to the ruling. I purchased EDIT as a breakout play with tight stop loss. Even though I'm still in mid-20s and could afford to take risky bets, I like to keep my loses small on risky stocks while continue to invest for the long term in my core positions.

Conclusion

CRISPR/Cas technology is no doubt one of the breakthrough technologies of the century. Compared to its predecessor (ZFN, TALENS and etc.), the superiority is clear. The ruling on the patent dispute regarding CRISPR/Cas9, while important, is just one event in the long journey to perfect our genetic manipulation capabilities. In fact, CRISPR/Cas9 is just one of the many CRISPR/Cas system that remains to be discovered (and patented).

Additionally, investors need to have a realistic expectation given that CRISPR/Cas system does have its own challenges. The winner of this long race would be those who could optimize the system by continuously innovating to solve the specificity, efficiency, and delivery issue. Happy investing and good luck!

Disclosure: I am/we are long EDIT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article was written only for informational purpose and is not a recommendation to invest in a particular stock. Investors should do their own due diligence before investing and make investment that is appropriate with their risk tolerance, investment horizon and investment goals.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.