Sage Investment Club

janiecbros Sometimes it’s the tortoise and not the hare which wins the race. Despite being founded 10 years ago, CRISPR Therapeutics (NASDAQ:CRSP) could very well lose out to 3-year-old Prime Medicine (NASDAQ:PRME). However that’s in the long run. In the short term, CRSP may be the better investment, despite the potential cancer-causing side effect of its editing, a side effect PRME avoids altogether. The big problem with CRISPR-Cas9 or “CRISPR 1.0” Due to environmental factors and normal metabolic processes in the cell, it has been estimated that each cell in your body experiences 10,000 to 1,000,000 molecular lesions (damages) per day. So is it really that big of a deal if you damage them some more with CRISPR-Cas9 editing? Actually, it is. It is true our cells are well-equipped at repairing DNA damage, but not all types. The vast majority of damage comes from oxidative stress and normal cellular chemical reactions, such as depurination and depyrimidinations. I could write a book about this subject but to keep it short and sweet, this graphic will help you understand: Komor Lab, University of California San Diego See that one in the middle with the radiation symbol? That’s the same type of damage you are doing with CRISPR-Cas9. Known as double-strand breaks (DSBs), these are the absolute worst type of damage. Why? Because the genetic blueprint is completely broken, making accurate repair difficult. Even with single-strand breaks (SSBs) there is still the other side attached. That attached side acts as a guide, meaning the repair mechanisms have more to go off of, clues as to what is missing on the broken side. With DSBs, genomic rearrangements are much more likely to occur. Those deletions, translocations, and fusions in the DNA are permanent mutations once they occur. DSBs are not a side effect of CRISPR-Cas9. They are completely intentional! That is how the editing is done — breaking both strands of the DNA in order to modify them. DSBs = cancer and aging Not all mutations cause cancer, but ALL cancers are the result of a mutation. With 3 billion letters in the human genome, we don’t know what the vast, vast majority of mutations do. Heck, we didn’t even fully map the human genome until 2022. No, that’s not a typo. The “complete” mapping widely publicized nearly 20 years ago was actually 92%. We didn’t have the technology to do the rest until last year. You have an estimated 37 trillion cells in your body and on any given day, trillions of mutations occur. Fortunately, the only ones which cause cancer are those mutations which cause uncontrolled cell replication AND don’t get taken out by your body’s defenses in time. As far as the rest of mutations? We don’t really know what they do, but we do know they’re not good. What causes aging? The error catastrophe theory of aging was originally proposed by Leslie Orgel in 1963. Summarized, aging equals the accumulation of genetic errors. Specifically, it results from a breakdown in the accuracy of protein synthesis within somatic cells. Eventually reaching a catastrophic level which is incompatible with cellular survival. While that specific theory has been largely disregarded due to lack of evidence, variations followed such as Leo Szilard’s two-hit model of somatic mutation accumulation which made more sense, but did not and could not incorporate future findings such as: Cellular senescence – Discovery that human cells can only replicate less than 70 generations in culture. Then they die. P53 – Known as the “tumor suppressor” protein, it goes to work against damaged DNA, particularly double-strand breaks. In doing so, it accelerates aging. Telomeres – Like the plastic caps on your shoelace, these protect the ends of your chromosomes. They are repetitive DNA sequences. As you age, they get shorter. The shorter they get, the less likely they are to protect what’s sandwiched between. There are other facets to aging but you can always link them back to genetic damage/modification. For example, P53 activity goes into overdrive to repair double-strand breaks. Cellular senescence is triggered by P53 (and similar P16 and P21) as well as telomeres being too short. Telomeres are highly sensitive to oxidative DNA damage and other forms. I won’t go further down this rabbit hole but I give you that taste, to show you the underlying double-strand break approach of CRISPR-Cas9 has follow-on effects which are not good. If/when increased cancer from CRISPR-Cas9? Last summer I was at a marina and recalled a conversation I had with a boat mechanic. The entire lake had just been treated with herbicides and everyone was supposed to stay out of the water for at least 24 hours. That’s bull. I don’t have cancer. I was even in the water last year while they were doing spraying it! His response ⁠— an expectation of cause and effect being closely linked in time ⁠— is how many people think of carcinogens and mutagens. They don’t realize that it takes 6 to 8 years before breast cancer has grown large enough to even be seen on a mammogram or felt. Some take much longer. Radiation-induced cancer can take 30+ years. I remind you the type of mutations most associated with radiation are the same type inflicted by CRISPR-Cas9; double-strand breaks. CRISPR-Cas9 treatments may appear safe from early data. Then years later, we may discover consequences. We don’t know if they cause cancer. Yet, CRISPR Therapeutics may still be a great investment Despite the potential dangers, CRISPR Therapeutics is best positioned for near-term upside. They are furthest along in clinical progression versus the other two original names in this space; Editas Medicine (EDIT) and Intellia Therapeutics (NTLA). CRISPR Therapeutics Q4 2022 investor presentation Exa-cel, formerly known as CTX001, is in phase 3 trials for sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT). This is in collaboration with Vertex Pharmaceuticals (VRTX). The biologics licensing application (BLA) for Exa-cel is now under a rolling review with the FDA. That began in November 2022 and the submission is expected to be complete by the end of Q1 2023. That means there is a real possibility this treatment is brought to market this year. That’s near-term catalyst number 1. Number 2 is even more speculative but I would argue it has decent odds of happening; Vertex might buyout CRISPR Tx. I have owned Vertex for years and followed their partnership with CRISPR Tx. Their collaboration agreement on CTX001/Exa-cel was originally a 50/50 split of both costs and profits. Then in 2021, Vertex paid an additional $900M just to get an additional 10% of profits (60/40). That also included Vertex paying an additional 10% of costs. In other words, Vertex is valuing CTX001/Exa-cell at $9B in and of itself. Contrast that with the $3.7B market cap of CRSP. Its enterprise value is even lower at $2B since they have so much cash. On the flip-side, it’s important to note that deal was done at the height of the COVID market mania. Back when Cathie Wood could do no wrong and CRSP was a stock she was hyping for not just the ARK Genomic Revolution ETF (ARKG), but also her flagship ARK Innovation ETF (ARKK). CRSP was about 2.5x higher in April 2021 than it is today. Would that same collaboration amendment with Vertex be so generous today? You be the judge. Intellia has similar collaboration agreements with Regeneron (REGN) on multiple programs. Financial details have been more opaque than that of CRSP/VRTX. However if you read between the lines (revenue reported in SEC filings) it’s safe to conclude those collaborations are less generous. In 2021, Intellia’s CEO adamantly said the company is “not for sale” but of course companies always say that, even if they really would consider it. Perhaps REGN will buy NTLA in the near future but if I had to bet on it, VRTX is more likely to buy CRSP based on how aggressive they’ve been on that partnership. CRSP vs. NTLA vs. BEAM vs. EDIT Given where CRISPR Therapeutics is at in clinical trials, one would think their valuation would be significantly greater than peers. That’s just not the case right now. Data by YCharts As you see, CRSP is neck and neck with its closest peer, NTLA, despite being much further along in clinical progress. You can also count Beam Therapeutics (BEAM) as a peer to both, despite not being CRISPR-Cas9 in the traditional sense. Base editing, which has been coined CRISPR 2.0, involves a variant of Cas9 that only nicks the DNA rather than doing double-strand breaks. Beam Therapeutics corporate presentation, Nov 2022 However with base editing you can only change a single nucleotide (one letter). Cytidine base editors or CBEs allow C>T conversions and adenine base editors or ABEs allow A>G conversions. Only about 1/3 of the ~75,000 known genetic errors can be fixed with base editing. So while it should be substantially safer than what CRISPR Therapeutics is doing, it is a not a substitute. They are targeting different diseases. As for EDIT, who sports a market cap just 1/5th that of CRSP, NTLA, and BEAM, that’s because their clinical trials are in disarray. Their foremost focus was ocular diseases — rare causes of blindness — and efficacy has been lackluster in trials. As someone who follows macular degeneration research, this is not that surprising. Getting vectors, which you can think of as payload delivery vehicles, to work in the retina is quite challenging. Regardless, Editas has lost collaboration partners and multiple CEOs in the past couple years. Despite lack of clinical progress, Editas is valuable for the CRISPR-Cas9 IP. They are one of the three originally licensed to the technology for human therapeutics: Labiotech The IP ownership is a mess and being disputed in multiple court battles. If you’re not familiar, Broad Institute and UC Berkeley both claim to be the original inventor of CRISPR-Cas9. Long ago, each licensed out the tech to the aforementioned companies. The latest 2022 court ruling actually favors EDIT (and not CRSP) as the rightful user. If this is ultimately upheld, it will be significant risk for CRSP. However don’t hold your breath, as people above my pay grade are not betting on that, judging by EDIT’s market cap and enterprise value. Since base editing is a variation of CRISPR-Cas9, any other company wishing to use it must license the original IP from CRSP, EDIT, or NTLA. That brings us back to Prime Medicine. They license their IP from BEAM, who licenses it from EDIT. Prime Medicine vs. CRISPR Therapeutics It’s hyped as “CRISPR 3.0” and actually, the hype may be justified. Prime editing is an evolution of base editing. It expands the limited scope of current base editing abilities (4 possible combinations C>T, G>A, T>C, and A>G) to all 12 combination swaps. That means it can delete long lengths of disease-causing DNA or insert DNA to repair errors, all in a manner safer than what CRISPR Therapeutics is doing. So as an investment, it sounds like PRME is a no-brainer over CRSP, right? Not necessarily. For starters, let’s compare the market caps and enterprise values: Data by YCharts CRSP has a market cap over double that of PRME, yet when you look at their enterprise value (which factors in cash and debt) the two companies are near identical valuations; $1.80B and $1.88B. But they are nowhere near the same level of clinical progress. One is in phase 3 while the other isn’t even in any. Their first isn’t expected to start until mid-to-late 2023. Prime’s pipeline You won’t find this on their website. You need to look at their S-1 filing from last year. Prime Medicine S-1 filing They intend to do both ex vivo (outside the body) and in vivo (in the body) editing. The latter is preferrable, if possible. As you see below, it would involve fewer steps for all parties; the manufacturer, the provider, and the patient. This saves money. CRISPR Tx websiteCRISPR Tx website Those graphics come from CRSP but the approach is the same, regardless of company. One reason NTLA’s stock market cap is near CRSP, despite being behind in clinical progress, is because of what they’ve demonstrated so far; successful in vivo human editing for transthyretin amyloidosis (ATTR). Based on today’s editing platforms, most would agree the ideal approaches would be in vivo using base and prime editing. This places Prime in an envious position in terms of market potential. Remember only about 1/3rd of genetic diseases can be fixed with a single nucleotide change (i.e. Base Therapeutics). To fix the rest without double-strand breaks, it appears that Prime Medicine offers the best solution we know of today. What about future dilution? This is the #1 problem with investing in early stage biotech. Not only do their therapeutic candidates need to be proven, but they need lots of money and time to do so. Because of constant secondary offerings to raise funds, early investors often end up as bagholders, even if the therapies eventually succeed. It is possible and even likely that Prime will be able to do more non-dilutive capital raises than your average biotech. Similar to the VRTX collaborations with CRSP, given the hype behind this tech, one would hope and expect Prime to work out similarly lucrative arrangements for profit and cost sharing on lead candidates, without issuing shares. But there are no guarantees. Most likely, there will still be some secondaries in the future. Then there’s the stock-based compensation, which can really add up over time. Contrast that to CRSP who, given the stage they are now at, is able to raise significant amounts without dilution. Who wins? That depends on your timeframe No doubt the earliest investors in Prime are currently sitting on a nice gain. While I haven’t invested in private biotech for several years, this one intrigued me so much that I did reach out to Prime as soon as the company was formed, before they even had a website, and my multiple inquiries to multiple people there all went ignored. That was when I wanted in. As far as investing now? I have started a tracking position but given the market cap approaching $2B, I’m in no hurry to add. Assuming they both remain independent, I do think over a long-time frame — say 5 to 12 years — Prime has real potential to outperform CRISPR Tx, perhaps dramatically, given the superior IP. But even superior IP cannot overcome inferior execution. Who’s to say they don’t mess it all up like Editas? In the near to intermediate, say between now and 2 years, odds seem to favor CRSP for outperformance. Of course that assumes they don’t make a major stumble. If Exa-cell/CTX001 fails, I would expect the share price to get cut and half, if not worse. For both, there’s always the risk of a better mouse trap from someone else. Prime seems to have no competitors for now but that may change. Late last year, a team from MIT developed a now editing method they call PASTE (Programmable Addition via Site-specific Targeting Elements). It doesn’t involve DSBs but since it is built upon a variation of CRISPR-Cas9, IP licensing will be required to develop commercially. Going back to the safety concerns with so-called CRISPR 1.0, remember that some treatment may be better than no treatment. Even if not ideal due to the DSBs, these therapies can serve as steppingstones, until safer ones come along. This is why CRSP and peers are still important. Prime Medicine is still under the radar In terms of near term catalysts for PRME, hype might be the only thing that can possibly propel the valuation higher in 2023. On that note, Cathie Wood did purchase PRME at the IPO or immediately thereafter for ARKG, but not ARKK. Of course her getting behind a name right now will not move it up and in fact, may have the opposite effect. Feng Zhang and Bill Whitaker at the Broad Institute recording 60 Minutes, credit: Broad Institute You may recall on April 29, 2018, the show 60 Minutes introduced CRISPR-Cas9 to the general public. This is what happened to the stock price: Data by YCharts Did 60 Minutes cause that? Who knows? What can be said is flashy biotech companies have a history of going on this show to promote themselves. Here’s how the Prime Medicine website describes their approach: Prime Editing is a technology that acts like a DNA word processor to “search and replace” disease-causing genetic sequences at their precise location in the genome, without causing double-strand DNA breakage. Hmm… has all the earmarks of flashy! Queen Cathie may be de-throned, but if 60 Minutes or some other prominent media run with the “search and replace” of “CRISPR 3.0” narrative, it could move the stock up in an unjustified manner. That is the risk of not buying it in the next year, despite clinical milestone being far off. When (and if) CRISPR Tx reaches the milestone of FDA approval, I would not be surprised to see 60 Minutes do a follow-up piece. Then again, all of media will be talking about the first approved CRISPR-Cas9 therapy, so not sure 60 Minutes specifically will matter much at that point. Seems like a great catalyst for CRSP if they get approval this year. In closing, I should mention what prompted me to write this CRISPR vs. Prime comparison; questions I got asked in my last piece where I touched on these names. It’s fittingly titled: 10 Potential 10x Return Stocks For The Next 10 Years. I emphasize that potential means possible, not probable.

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