The public is only now hearing about the stunning potential of genome editing to treat diseases, and scientists are barely three years into using one of the hottest editing techniques for basic research.
So the announcement on Monday that a genome-editing company, Editas Medicine, plans to go public was unusual, even for the go-go world of life sciences. It underlined the lightning speed with which the field is moving — and the temptation biotech start-ups face to let early investors cash out as buzz reaches a crescendo even if the treatments they hope to sell might never materialize.
“I’m not surprised by the timing,” said Ashwin Murali, an analyst at Waltham, Mass.-based hedge fund Matrix Capital Management. “Editas likely did this in order to cash-up prior to [incurring] any clinical trial costs” and has “both monetary and psychological” reasons for going public.
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The psychological value of an IPO is the signal it sends to current and future employees that any stock options they hold or are offered will be valuable. According to its filing with the Securities and Exchange Commission, Editas has issued more than 4 million shares of unvested restricted stock as of November 30, 2015, at an average exercise price of $2.50 per share. Anyone who holds those options can, therefore, make a profit once shares begin to trade on the NASDAQ (under the ticker symbol EDIT) of the stock price minus $2.50.
It’s “a time of great variability and uncertainty in the biotech markets as a whole, but it is a time when gene therapy is highly hyped and valued,” said Murali. “I think the logic on Editas’s part is to capitalize on the very, very good publicity around gene therapy and, specifically, CRISPR,” the newest of the precision genome-editing techniques.
That publicity reflects the pace of discovery. Three years ago this month scientists reported that CRISPR-Cas9, a pathogen-fighting system in bacteria, could be used to snip out genes in human and other animal cells and replace them with new ones. It has since become known as a biological “find and replace” technique with the potential to remove disease-causing genes, such as that for sickle cell, and insert healthy ones.
Last week alone, for instance, three separate teams of scientists reported that they had used CRISPR to treat Duchenne muscular dystrophy in mice. Researchers led by Editas cofounder George Church of Harvard University announced last year that they had used CRISPR to edit 62 genes in pigs in a way that could make the animals’ organs suitable for transplant into humans.
Such prospects allowed Cambridge, Mass.-based Editas to raise $163.3 million from private investors such as Flagship Ventures (16.6 percent), Polaris Venture Partners (15.6 percent), Third Rock Ventures (15.6 percent), and bng0 (8.9 percent). Existing shareholders paid an average price of $2.11 per share, according to the SEC filing.
With an initial public offering “as soon as practicable,” the company aims to raise another $100 million, though that could change depending on how many investors want in.
Editas acknowledged the many risks would-be investors face, spending 56 pages of the 268-page SEC document on them. “It will be many years, if ever, before we have a product candidate ready for commercialization,” Editas said. And if the company cannot raise more money after the IPO, it “would be forced to delay, reduce, or eliminate our research and product development programs or commercialization efforts.”
The company’s first clinical trial, for a rare genetic form of blindness called Leber congenital amaurosis (LCA) 10, will not even begin until 2017, CEO Katrine Bosley announced in November. Editas had spent $75.7 million through September 2015, since its founding (as “Gengine Inc.”) in 2013, it said. It plans to spend $15 million to $20 million from the IPO on clinical trials for LCA 10. It also plans to develop genome-editing treatments for Usher syndrome 2a, another eye disease, and blindness caused by herpes simplex 1 infection.
One risk involves patents. Editas holds 20 in the United States and Europe, including a key CRISPR patent issued to the Broad Institute of Harvard and MIT in 2014. That one was for discoveries made by one of Editas’s cofounders, biologist Feng Zhang of the Broad. But it has been challenged by the University of California, Berkeley, where Jennifer Doudna led a key CRISPR study that was published months before Zhang’s. And Editas revealed in its filing that a previously overlooked claimant, Rockefeller University, has also challenged the Broad patent.
“Broad may not be the sole and exclusive owner of any [CRISPR] patents” that it has been awarded, Editas acknowledged.
Late last month, the US Patent and Trademark Office examiner handling the CRISPR patents recommended that a USPTO board institute an “interference proceeding” between Doudna and Zhang.
“This means that we may very well see some heated litigation between both sides, including, possibly, Doudna and Zhang, being deposed about when they invented CRISPR technologies and an oral argument before a three-judge panel at the USPTO,” law professor Jacob Sherkow of New York Law School told STAT after he blogged about the development last week.
Doudna was a cofounder of Editas, but she parted ways with the company and cofounded a rival genome-editing company, Caribou Biosciences. CRISPR Therapeutics, another competitor, has an exclusive license to patent rights from Emmanuelle Charpentier, who collaborated with Doudna on the key 2012 CRISPR breakthrough.
Editas does not have rights to Zhang’s discovery last year of a new CRISPR-related enzyme. Called Cpf1, it could be more precise than the molecular scissors originally used with CRISPR. “If we were to seek such rights [to Cpf1], there can be no assurance we could obtain such rights on commercially reasonable terms, or at all,” the company said.
Although the patent mess might suggest that some of these companies are going to lose badly, that might not be so. At worst, said the chief scientific officer of a rival genome-editing company, the losers “just write a check,” meaning they license the necessary patents from whoever holds them.
Of course, there is still no proof that CRISPR can cure any diseases. Even its safety has not been demonstrated. CRISPR is known to snip out at least some bits of DNA other than the ones it’s supposed to, raising fears that such “off-target effects” could make the technique too risky to use in patients.
Whatever the risk to investors, a CRISPR company going public at what could be a billion-dollar valuation could also affect ordinary patients. “As money and excitement enter a field, there is a risk the patient population will incorrectly believe that clinical treatments are — or at least ought to be — available,” said legal scholar and bioethicist R. Alta Charo of the University of Wisconsin Law School.
That happened with stem cells 15 years ago, and since then, countless clinics offering sketchy stem-cell-based “treatments” have popped up across the world. Patients and their families, seeing reports of the muscular dystrophy mice study and other CRISPR advances, might think “they may begin searching for clinics” offering CRISPR therapy, Charo warned — and might find them in countries with minimal health care oversight.
“It does not take much imagination to conjure up scenarios in which patients are misled into (at best) useless and (at worst) harmful interventions using not-yet proven applications of gene editing,” Charo said.