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5 Top Gene-Editing Stocks for 2019

Keith Speights, The Motley Fool

You've probably heard the words "revolutionary" and "transforming" used to describe plenty of innovations that ended up being neither. But gene editing is worthy of both terms.

The technology holds the promise of changing how diseases, especially those caused by genetic mutations, are treated. Gene editing could even result in cures to diseases that are untreatable today. With this kind of groundbreaking potential, it's not surprising that biotech investors have turned their attention to stocks focused on gene-editing therapies. Here's what you need to know about this hot area of healthcare and the top five gene-editing stocks to put on your radar for 2019.

DNA with a part separated from the DNA helix.

Image source: Getty Images.

What is gene editing?

It's important to first know what gene editing is -- and isn't, starting with learning about DNA (deoxyribonucleic acid).

As you may recall from biology class, DNA is structured as a double helix -- kind of a twisted ladder. Each step of this ladder is made up of chemical base pairs: adenine with thymine, and cytosine with guanine. The sequence in which these chemical base pairs occur in DNA provides the instructions for the assembling of animals, plants, and humans.

A gene consists of DNA segments that control the development of one or more specific traits inherited by a child from its parent. A genome is the complete set of genes for an organism.

Gene editing (also known as genome editing) involves the insertion, deletion, or replacement of those chemical base pairs in DNA. These changes to DNA base pairs can impact how an organism functions. Think of gene editing as "molecular scissors" that snip sections of DNA and allow for the addition of a different sequence, or replacement of the deleted sequence.

How is gene editing actually performed? Gene-editing therapies are typically delivered via a virus known as a viral vector. You can think of the viral vector as a transport jet carrying its payload, the gene-editing therapy.

In some cases, genes are edited inside the body (in vivo). For example, the viral vector carrying the gene-editing therapy could be injected into an organ such as the eye. In other cases, the genes of cells are edited outside of the body (ex vivo) -- for example, genes in blood cells can be edited outside of the body then put back in the body.

Gene therapy is similar to but different from gene editing. Rather than editing existing DNA sequences, gene therapy actually introduces foreign DNA into cells.

Types of gene editing

There are three primary types of gene editing used today:

All three types target specific DNA sequences, cutting those sequences out of a gene. ZFN is the oldest method of gene editing, dating back to the 1990s. It was the only method for gene editing until 2009, when the TALEN approach was discovered, offering more specific targeting of DNA sequences.

However, the biggest gene-editing development happened in 2012 with the discovery of CRISPR. Scientists found that certain bacteria used gene editing as a defense mechanism, and they realized they could harness the approach to selectively edit DNA. CRISPR was much cheaper, simpler, and faster than ZFN and TALEN, and it quickly became the most-used method for editing genes.

What to look for in gene-editing stocks

There are several criteria investors should evaluate before buying any stock, including the company's financial condition and the caliber of its management team. However, there are also certain criteria with unique importance in the gene-editing arena.

First, consider what stage of development the gene-editing company is in. The drug-development process for biotechs focused on gene editing begins with the discovery phase, in which a specific gene target is identified. Next, gene-editing therapies move into preclinical testing involving test tube lab studies or testing in animals. If preclinical testing goes well, the company can try to obtain regulatory approval from the U.S. Food and Drug Administration (FDA) or the European Medicines Agency (EMA) in Europe to begin clinical trials in humans.

The stage of development helps you assess the risk level associated with a particular gene-editing stock. The farther along the development curve that a biotech is, the lower its risk level. It's also important to review any results from ongoing testing of the gene-editing therapies.

Clinical testing in humans begins with a phase 1 study, which is designed to evaluate safety and to establish dosages for further testing. Then phase 2 studies focus on determining efficacy and the optimum dosage(s) for the therapy. Phase 3 studies typically include a larger group of patients, and they are the final step to establish efficacy and safety profiles before seeking regulatory approval from the FDA or EMA.

Another key criterion to look at with gene-editing stocks is which major partners the biotech has.

Gene-editing developers are small. Developers forming partnerships with major drugmakers, especially making deals involving significant investments, can give investors a higher level of confidence in the small biotechs' gene-editing therapies. The due diligence has been done for you, as the large companies direct their research teams to thoroughly examine the experimental therapies before putting money on the table.

Don't forget to examine the specific diseases a biotech is targeting with its gene-editing therapies, also known as indications by the FDA. The primary reason for looking at the target diseases is to determine the commercial potential for the therapy. This potential includes the number of patients who could benefit from the therapy as well as the level of competition in the targeted disease. More targeted diseases, more potential patients, and fewer competitors should translate to higher potential sales for gene-editing therapies. Once a therapy is approved for one indication, the company will often look to expand its use into other indications if it is safe and efficacious.

Growth prospects for gene editing

Because gene editing is still in its infancy, predicting growth prospects with any level of precision is difficult. A report from market researcher Research and Markets projects that the global gene-editing market will grow by a compound annual growth rate of 17% to reach $10.7 billion by 2025. Grand View Research, on the other hand, has a less optimistic view. The market research company estimates that the global gene-editing market will reach $8.1 billion by 2025.

Investors probably need to have even longer time horizons to truly appreciate the opportunities for gene editing. There are more than 10,000 diseases that are caused by mutations -- changes in the normal sequence of DNA -- in a single gene, according to the World Health Organization. Over the long run, many, if not all, of these diseases could be targeted by gene-editing therapies. In addition, other non-genetic diseases, including certain types of cancer, could be treated using gene-editing therapies that modify the body's immune cells to fight the diseases. Even optimistic projections for the gene-editing opportunity could prove to be well below the actual market size in the future.

Top five gene-editing stocks for 2019

Here are the top five gene-editing stocks to consider in 2019:

Company

Market Cap

Stage of Development

Major Partners

Target Indications for Lead Gene-Editing Candidates

Cellectis (NASDAQ: CLLS) $741 million Phase 1

Allogene

Pfizer

Servier

Acute lymphoblastic leukemia (ALL)

Acute myeloid leukemia (AML)

Blastic plasmacytoid dendritic cell neoplasm (BPDCN)

CRISPR Therapeutics (NASDAQ: CRSP) $2 billion Phase 1

Bayer

Vertex

Beta thalassemia

Sickle cell disease

Editas Medicine (NASDAQ: EDIT) $994 million Phase 1 (begins in 2019)

Allergan

Celgene

Leber congenital amaurosis type 10 (LCA10)
Intellia Therapeutics (NASDAQ: NTLA) $624 million Preclinical

Novartis

Regeneron

Transthyretin amyloidosis (ATTR)

Sangamo Therapeutics (NASDAQ: SGMO) $1.1 billion Phase 1/2

Gilead Sciences

Pfizer

Sanofi

Hemophilia B

Mucopolysaccharidosis type I (MPS I)

MPS II

Data sources: Yahoo! Finance, company presentations. Data as of Feb. 25, 2019.

1. Cellectis

Cellectis focuses on using TALEN gene editing to develop allogeneic chimeric antigen receptor T-cell (CAR-T) therapies. CAR-T is a promising cancer treatment that involves engineering the genetics within the body's immune cells called T-cells to make them attack specific types of cancer.

A couple of approved CAR-T therapies are already available -- Gilead Sciences' Yescarta and Novartis' Kymriah. Both of these therapies obtain T-cells from patients to be genetically engineered, then put the revamped cells back into the patient to start treating the cancer. Allogeneic (which means genetically dissimilar) CAR-T therapies like the ones that Cellectis is developing use "off-the-shelf" genetically engineered T-cells from healthy donors, which could greatly reduce the time and cost associated with current CAR-T therapies.

Two of Cellectis' therapies are in phase 1 clinical studies. The biotech licensed UCART19, which targets ALL, to French drugmaker Servier, which subsequently sold the rights to develop and market the therapy in the U.S. to Pfizer. In 2018, Pfizer contributed its allogeneic CAR-T portfolio to Allogene Therapeutics. Pfizer owns around 19% of Allogene and roughly 7% of Cellectis.

Cellectis fully owns the rights to UCART123 for treating AML and BPDCN. In addition, the company expects to begin a phase 1 study of UCART22 in treating ALL this year and hopes to submit for approval in 2019 to begin clinical testing of UCARTCS1 in treating multiple myeloma.

UCART19 is the farthest along in testing. However, the results have been mixed so far. In the phase 1 study evaluating the CAR-T therapy in treating ALL in pediatric patients, five patients were initially cured. The bad news, though, was that two patients relapsed then died. Another of the five patients died due to transplant-related complications.

ALL is a rare type of cancer, with fewer than 6,000 new diagnoses in the U.S. each year. There are several drugs approved by the U.S. Food and Drug Administration (FDA) to treat the disease. However, there remains a significant unmet medical need.

AML is more common. The American Cancer Society (ACS) projects around 21,450 new cases will be diagnosed in the U.S. in 2019. While several drugs have been approved for treating AML, there are currently no approved CAR-T therapies. The need for new treatments is significant, as the ACS estimates there will be 10,920 deaths from AML in 2019.

2. CRISPR Therapeutics

As you probably gathered from its name, CRISPR Therapeutics uses the CRISPR gene-editing method. The biotech's lead candidate, CTX001, is currently in phase 1 clinical studies, and it targets blood diseases such as beta thalassemia and sickle cell disease (SCD).

Both beta thalassemia and SCD are caused by mutations (changes to DNA sequences) in the same gene. This common denominator has allowed CRISPR Therapeutics to move forward with the two indications almost simultaneously. However, the biotech's phase 1 study evaluating CTX001 in beta thalassemia is ahead because the FDA placed a clinical hold on the company's SCD study because the agency needed more information. But that clinical hold was subsequently lifted.

Vertex Pharmaceuticals partnered with CRISPR Therapeutics in 2015 to jointly develop gene-editing therapies to treat cystic fibrosis and SCD. This SCD focus ultimately led to CTX001, while the cystic fibrosis therapy development is still in preclinical research. Vertex owns a minority stake in CRISPR Therapeutics.

Bayer joined forces with CRISPR Therapeutics in 2015 and also bought a minority interest in the biotech. The companies formed a joint venture, Casebia Therapeutics, which focuses on developing gene-editing therapies for treating blood disorders, blindness, and congenital heart disease. None of these therapies have advanced into clinical testing in humans yet.

CRISPR Therapeutics intends to begin a phase 1 clinical study of its allogeneic CAR-T therapy CTX110 in the first half of 2019. This therapy targets the treatment of cancers caused by overexpression of the protein CD19, potentially including B-cell lymphoma, ALL, and chronic lymphocytic leukemia (CLL).

All of the primary indications targeted by CRISPR Therapeutics have a significant unmet medical need. Beta thalassemia affects around 60,000 births worldwide each year, but there is no approved drug yet for the disease. Many beta thalassemia patients must undergo regular blood transfusions. SCD impacts 300,000 births annually, with only two approved treatments and no cure.

3. Editas Medicine

Editas Medicine also uses CRISPR gene editing. The biotech's lead candidate, EDIT-101, targets treatment of Leber congenital amaurosis type 10 (LCA10), the leading cause of genetic blindness.

EDIT-101 should soon become the first in-vivo (in-the-body) CRISPR therapy to be tested in humans, according to Editas CEO Katrine Bosley's remarks at the J.P. Morgan Healthcare Conference in January. Editas plans to begin screening patients for a phase 1/2 clinical study in the first half of 2019 then initiate dosing of patients in the second half of the year.

Editas isn't going it alone with EDIT-101, partnering with Allergan in 2017, which has the option to license up to four other gene-editing therapies targeting eye diseases.

The approach taken with LCA10 should lend itself to more genetic eye diseases. Editas hopes to move forward into clinical studies with a therapy targeting Usher syndrome type 2A (USH2A), another rare genetic eye disease, in the not-too-distant future.

Another program that Editas thinks will move into clinical testing relatively soon is its CRISPR therapies targeting beta thalassemia and SCD. Although CRISPR Therapeutics has a head start over Editas in this area, Editas believes that its gene-editing approach is better than its rival's because it more effectively maintains the functionality of hematopoietic stem cells (HSC) -- cells that develop into all types of blood cells.

Editas is also developing CAR-T and T-cell receptor (TCR) therapies (which are like CAR-T therapies that target proteins inside of cells rather than outside of cells) with Celgene targeting the treatment of various types of cancer. This research is still in early stages, though, and no plans have been announced about clinical testing.

The LCA10 indication by itself presents a significant opportunity for Editas. Between 2,000 and 5,000 patients have the eye disease in the U.S. and Europe, and currently, no approved treatments exist for LCA10. However, another biotech, ProQR, is evaluating a gene therapy targeting LCA10 and plans to begin a phase 2/3 study in the first half of 2019.

4. Intellia Therapeutics

Intellia Therapeutics also uses CRISPR gene-editing technology, though it is behind its rivals CRISPR and Editas. The biotech doesn't expect to submit for approval to begin a phase 1 clinical study of its lead candidate targeting transthyretin amyloidosis (ATTR) until 2020.

Regeneron is collaborating with Intellia on the ATTR program. The big biotech also has options to license Intellia's CRISPR therapies for up to nine other targets. In addition, Regeneron invested $50 million in Intellia.

Intellia also teamed up with Novartis in 2015, and the two are working together to develop CRISPR gene-editing therapies targeting SCD and other undisclosed cancer indications. Novartis owns nearly 10% of Intellia.

How big is the opportunity for Intellia's lead candidate targeting ATTR? It's a rare disease with fewer than 6,400 patients in the U.S. But one drug has already been approved for the disorder -- Alnylam's Onpattro. Pfizer could have a second drug on the way with tafamidis.

5. Sangamo Therapeutics

Sangamo Therapeutics is the only biotech among these five that uses ZFN gene editing. The company's pipeline includes gene therapies as well as gene-editing candidates.

Its lead gene-editing programs target rare genetic diseases MPS I, MPS II, and hemophilia B, all three of which are in phase 1 clinical testing. Sangamo disappointed investors in September 2018 with results that didn't clearly show efficacy for its MPS II therapy.

Bioverativ, which was acquired by Sanofi in 2018, is partnering with Sangamo on using ZFN gene editing in treating beta thalassemia. The two companies are also developing a gene-editing therapy for SCD.

Gilead Sciences picked Sangamo in February 2018 as its partner to develop CAR-T therapies -- both autologous (genetically engineering the patient's T-cells) and allogeneic (genetically engineering donors' T-cells). These efforts are still in preclinical testing.

Sangamo also attracted Pfizer with its SB-525 gene therapy program targeting hemophilia A. The two companies reported positive preliminary results in August 2018 from a phase 1/2 clinical study of SB-525.

If its gene-editing therapies succeed in clinical testing, the market opportunities for Sangamo should be very good. Hemophilia B affects around 4,000 Americans. An estimated 2,000 patients in the U.S. have MPS I, with another 500 diagnosed with MPS II. Although there are FDA-approved drugs for all three indications, the need for more effective treatments is strong.

Risks for gene-editing stocks

Biotechs that focus on gene editing face the same risks all other biotechs do -- the possibility that their experimental treatments will prove to be ineffective or unsafe. The latter risk is especially concerning for gene-editing stocks.

One key risk for gene editing is that unintended off-target mutations could and do occur. Some studies have identified examples of such off-target mutations with CRISPR, for example. Leading scientists think that these issues can be prevented, but safety concerns could slow down development and clinical testing of CRISPR therapies.

An even greater challenge is the possibility that CRISPR gene editing could actually increase the risk of cancer. Two scientific studies in 2018 highlighted this risk. Researchers found that CRISPR-Cas9 (Cas9 stands for CRISPR-associated system 9), the most-used type of CRISPR gene editing, induced a response in cells that attempted to protect against DNA damage by activating the p53 gene. The p53 gene went to work trying to either repair the DNA break or cause the cell to self-destruct.

Here's the problem: CRISPR-Cas9 doesn't appear to work very well in cells where the p53 gene kicks into action. However, it works great in cells where there are mutations in the p53 gene -- but unfortunately, p53 gene mutations are linked with higher rates of several types of cancer.

So far, the increased risk of cancer associated with the p53 gene issue appears to only be at play when CRISPR-Cas9 is used to delete DNA sequences and insert a new DNA sequence. This two-step process is called gene correction. The higher cancer risk doesn't seem to be a problem when CRISPR-Cas9 only deletes DNA sequences -- a process referred to as gene disruption.

The good news for CRISPR Therapeutics, Editas Medicine, and Intellia Therapeutics is that their lead candidates all use gene disruption and not gene correction. The bad news, however, is that all three CRISPR-focused biotechs have other programs that do employ gene correction.

And while Cellectis' TALEN and Sangamo's ZFN gene-editing methods haven't been linked to increased cancer risk, there is still a possibility that similar or new issues could be discovered in the future that impact them.

The risks associated with gene-editing stocks are significant. As a result, these stocks are suitable for only the most aggressive and risk-tolerant investors.

Think long term

As with any type of investing, you need to be aware of the potential rewards and the potential risks. Investing in gene-editing stocks definitely comes with both. Over the long run, though, the potential for gene editing should be realized. Patients with diseases for which there are no approved treatments today could even be cured.

Outgoing Editas CEO Katrine Bosley said in January that the use of gene editing to treat diseases is "what the future of medicine looks like." These five stocks provide investors a chance to get in on the ground floor of that promising future.

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Keith Speights owns shares of Celgene, Editas Medicine, Gilead Sciences, Pfizer, and Vertex Pharmaceuticals. The Motley Fool owns shares of and recommends Alnylam Pharmaceuticals, Celgene, Editas Medicine, and Gilead Sciences. The Motley Fool owns shares of CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.