There are both opportunities and challenges to modifying DNA for therapeutic applications, but objective information is scarce.
October 8, 2021
Right or wrong, temporary or everlasting, relative valuation has become a powerful narrative in the stock market. Investors might have noticed it creeping into drug developer stocks, too, especially CRISPR stocks. When Intellia Therapeutics (NASDAQ: NTLA) announced promising preliminary phase 1 results from six patients at the end of June 2021, billions of dollars were added to the combined market valuations of companies developing CRISPR tools.
That never made sense for technical reasons (there are significant differences in tools and development strategies within the field) and industry-specific reasons (relative valuation should never be applied to precommercial drug developers). Indeed, only two CRISPR stocks are trading above their prices from the day before the Intellia Therapeutics bump.
The excitement surrounding gene editing is understandable, but the events of the last several months highlight one of the pitfalls to a top-down approach to investing: Momentum isn’t a durable advantage. In order to make the most educated investing decisions, investors need to understand as much of the context and nuance related to the companies they own as possible.
It’s not your fault that most “analysis” is just cheerleading masked by momentum or articles written by anyone with a pulse due to the twisted incentives of digital media. Let’s take a step to address the shortcoming so the little guy isn’t left holding the bag.
It’s common to see “CRISPR” and “gene editing” used interchangeably, but that’s not quite correct. CRISPR is a system of tools, whereas gene editing is a therapeutic approach. There’s a quickly-expanding list of systems and three major approaches.
When it comes to approaches, investors should draw clear distinctions between gene editing, base editing, and prime editing. These can be neatly organized into three generations of technical advances:
Gene editing (1st generation): Used to make moderately precise modifications of genes. Requires making a double-stranded break (DSB) in the DNA. Being studied in clinical trials.
Base editing (2nd generation): Used to make precise modifications of genes. Only requires a single-stranded break (SSB) in the DNA. Not yet being studied in clinical trials.
Prime editing (3rd generation): Used to make precise modifications of genes with single-stranded breaks (SSB) in the DNA. Only requires a single-stranded break (SSB) in the DNA. Not yet being studied in clinical trials.
When it comes to systems, investors must acknowledge a range of tools available. There are too many to provide a comprehensive list, but the primary systems include CRISPR, ARCUS, TALENs, and zinc finger nucleases. Each of these systems relies on enzymes — the powerful catalysts of biology — which presents both challenges and opportunities. As we’ll discuss below, there are emerging systems and approaches that could overtake anything available on the public markets today.
Importantly, each system can be used with any approach. There are CRISPR base editors, ARCUS base editors, and TALEN base editors. The only exception is prime editing, which has only been developed with CRISPR systems to date. It should be noted that there are no technical barriers to developing alternative prime editors with other systems.
Similar to how “CRISPR” and “gene editing” are often used interchangeably, investors might think that all mutated genes are created equal, but that’s not quite accurate. Mutations can occur in different parts of a gene or lead to different outcomes for a gene relative to its natural function. There can even be beneficial mutations, such as protecting individuals from osteoporosis or cardiovascular disease.
As such, there are many different ways to modify genes. Common applications today include:
Knockout: Disabling a gene’s function.
Insertion: Adding a gene to the genome in a precise location.
Activation: Upregulating a beneficial gene.
Knock in: A variation of an insertion.
Precise correction: The Holy Grail of modifications to a genome, in which scientists can make exactly the right changes to a genome — nothing more, nothing less.
The precision and genetic consequences of each application varies depending on the combination of system and approach used. For example, first-generation CRISPR gene editing knockouts aren’t actually precise. They precisely target a specific gene, but they work by making random insertion and deletion (indel) mutations in the ballpark of a target sequence. When combined with double-stranded breaks (DSBs), that could create long-term safety risks for patients such as the formation of cancers.
Meanwhile, a CRISPR base editor would be much more precise than a CRISPR gene editor. However, base editors are limited to specific parts of a gene, which means base editing cannot be used to target every validated genetic target.
Investors must acknowledge the differences between the two DNA editing approaches:
Ex vivo: The DNA editing therapeutic payload is used as an engineering tool in a laboratory setting to create cell therapy. There is more control over the impacts of this approach, as engineered cells can be screened.
In vivo: The DNA editing therapeutic payload is used as an engineering tool within the human body to modify genes directly within a patient. There is much less control over the impacts of this approach.
One of the most important things for investors to understand with respect to genetic medicines is that gene expression is tissue specific. Muscle cells in your left pinky finger contain the same exact genome as your liver, but that doesn’t mean every gene is expressed in equal amounts in both tissues.
In other words, if a disease is primarily caused by a gene expressed in your liver, then the therapeutic payload has to impact gene expression in your liver. That means the therapeutic payload must be designed for delivery to the liver. Right now, genetic medicines are primarily “stuck” with delivery to the liver. No DNA editing system or approach has attempted to deliver outside of the liver, which is a new challenge for all therapeutic modalities within genetic medicines. Tissue-specific delivery is the next battleground for genetic medicines and will distinguish between the winners and losers in the coming years.
There are too many challenges to provide a comprehensive list, but several of the primary challenges include:
Double-stranded breaks (DSBs): A DSB is one of the most traumatic events in biology — there’s a reason you wear a lead vest when getting an X-ray at the dentist. The fact that first-generation gene editing requires a DSB is potentially problematic. In preclinical models using first-generation CRISPR gene editing, scientists have observed random insertions, random deletions, chromosomal rearrangements, and chromothripsis — all hallmarks of cancerous cells. The risks might not be observed until years after clinical trials are completed, but considering these tools are permeant, DSBs represent a considerable commercial risk.
Genes play multiple roles in the body: Investors might think that silencing or introducing a single gene can provide a durable treatment option, but it’s important to evaluate each DNA editing program on a case-by-case basis. For example, the lead drug candidate from Intellia Therapeutics, NTLA-2001, silences the TTR gene in the liver. Mutations in the TTR gene can lead to hereditary transthyretin amyloidosis (hATTR). However, the TTR gene is essentially only expressed within the liver and is one of the only transporters of vitamin A in humans. We need vitamin A for vision. There’s emerging evidence that TTR plays a role in clearing amyloid plaques from the brain to prevent dementia and Alzheimer’s disease. In other words, permanently silencing the TTR gene means individuals will require daily, lifelong supplementation of vitamin A, will suffer from night blindness (loss of vision in low light), and potentially be at higher risk of dementia. That may be an acceptable tradeoff for a fatal disease, but it highlights the point that imprecise first-generation gene editors are not quite cures or the final bookend in treatment options.
Base editing is limited to specific windows: The beauty of base editors is that they avoid DSBs. However, they can only act on relatively limited parts of a gene. The approach can still be valuable for specific diseases with large economic opportunities, but investors must maintain realistic opportunities. For this reason, base editors that precisely knockout a gene (such as Verve Therapeutics (NASDAQ: VERV) in cardiometabolic diseases) might be more attractive than base editors attempting to make a precise fix of a mutation (for example, there are dozens of mutations for A1AT liver disease, which might require multiple drug candidates to treat the same disease).
Therapeutic payload sizes: First-generation gene editing exposes investors to the potentially existential risk of DSBs, but it has the smallest payload size of existing approaches. Second-generation base editing is more precise, but the therapeutic payload is much larger, which creates challenges to delivery to specific cell types. Third-generation prime editing might be even more precise, but the therapeutic payload is even larger than base editing payloads, which might exclude it from delivery to most cell types.
Permanent vs. temporary: DNA editing from existing therapeutic modalities is permanent. There is no “undo” button once a drug candidate is administered to patients. Considering the long-term safety risks of DSBs, this is a potentially existential risk for first-generation gene editing approaches. It’s noteworthy that the world’s largest pharmaceutical companies have largely side-stepped DNA editing and instead focused on forming collaborations within RNA editing, which is temporary and reversible.
Insertions: Intellia Therapeutics and Graphite Bio (NASDAQ: GRPH) each have preclinical pipeline programs for insertion applications. In contrast to gene therapy, these programs utilize CRISPR to create a “precise” integration site within a genome. However, similar to gene therapy, these programs utilize an adeno associated virus (AAV) vector to insert genes into the genome. If the AAV vector becomes integrated into the human genome, then it could increase mutagenesis (cancer) risks. The idea is that creating a precise insertion site mitigates these concerns, but requiring a DSB heightens the risk of unmanageable integration risks.
As popular and trendy as the existing DNA editing approaches and systems are today, investors should acknowledge that they might be overtaken by emerging tools. My view is that CRISPR has only created the opportunity for more advantaged tools to emerge, including:
RNA editing: These tools have two advantages over DNA editors. First, they’re temporary, which means any emergent safety risks can be resolved. Second, they can recruit enzymatic machinery already present within cells called ADAR. That simplifies therapeutic payloads compared to enzymatic DNA editors — CRISPR, ARCUS, TALEN, and so on — that require an enzyme to be introduced. It should also absolve risks related to immune reactions to the introduced enzymes, as ADAR is already present within cells. ProQR Therapeutics (NASDAQ: PRQR) and privately-held Shape Therapeutics are two leading RNA editors. It should be noted that RNA editors are base editors, which means DNA editing systems can be modified to edit RNA. Beam Therapeutics (NASDAQ: BEAM) owns intellectual property for CRISPR base editing of RNA, but the therapeutic payloads are bulkier and more complex.
Oligo DNA editors: CRISPR, ARCUS, and TALEN are each enzymatic systems that require multiple components for a single therapeutic payload. To ensure all of the components arrive at the same place at the same time, the therapeutic payload must be encapsulated into an AAV or lipid nanoparticle (LNP). But encapsulation complicates things by limiting tissue delivery and limiting administration to intravenous procedures. An emerging therapeutic modality is peptide nucleic acids (PNAs), which can act as precise base editors without encapsulation if the therapeutic payload is conjugated to a DNA template. PNAs can be administered subcutaneously (a simple shot) and cross the blood-brain barrier to boot. NeuBase Therapeutics (NASDAQ: NBSE) is the only company developing PNAs, although it hasn’t publicly-announced base editing programs — yet. The company has poached executives and researchers from RNAi leaders Arrowhead Pharmaceuticals and Alnylam Pharmaceuticals.
Retrons: This form of DNA editing requires its own article, but retrotransposition is an emerging therapeutic modality based on the approach of recombineering that can write genes directly into the genome. Some of the inventors of CRISPR have since moved onto retrons for multiple technical reasons. Emerging companies within this space include privately-held Tessara Therapeutics. Retrons can make an order of magnitude more edits simultaneously, are less immunogenic, and accelerate R&D compared to CRISPR — quite a statement considering the screening advantages of CRISPR.
My personal investing style is based on a bottom-up approach. I begin by poring over scientific literature for a technical approach. Next, I map the competitive landscape of public and private companies developing both the related tools and competing tools. Finally, I evaluate the companies within each space to identify the best company or two. Sometimes I complete months of research and walk away unsatisfied. That’s what happened with bispecific antibodies, although I identified Merus (NASDAQ: MRUS) as the company that was closest to passing my research frameworks — it recently popped 37% on favorable clinical results.
Since joining 7investing as a Lead Advisor in September 2020, my work has focused on steering members through what I think is a market bubble — at least in drug developers. I’ve leaned on my research frameworks to identify earlier-stage drug developers with favorable risk-to-reward profiles. It might not look pretty 14 months in, but every company I’ve recommended is executing as expected or better. Research matters more than momentum.
When it comes to DNA editing stocks, investors will be best-served by understanding as much of the context and nuance involved as possible. You don’t need to be a scientist, you only need a willingness to learn. My aim with this article was to provide a basic framework for evaluating DNA editing stocks. In my next article, we’ll evaluate how each company in the field fits within all of the criteria introduced above.
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