Editas Medicine IPO Is Only For Long Term Biotech Investors

  • Gene-editing firm Editas Medicine is expected to go public later this week.
  • The company raised $160M from private investors and sought an additional $100M from the public to fund preclinical trials.
  • Technology and products are far from being tested or FDA-approved.
  • Editas IPO fits for biotech investors with a very long investment horizon. Other investors might want to wait before investing.

The biotech company Editas Medicine is expected to go public this week under the symbol EDIT, seeking to raise more than $100M from the public. Editas Medicine is a small biotechnology company based in Cambridge, MA that is focused on curing genetically defined diseases by editing and correcting disease-causing genes through a revolutionary new technology, CRISPR Cas9. The gene-editing technology can make precise changes to the DNA and allows Editas Medicine to insert, replace or remove DNA in a genome.

Editas Medicine is only a three-year-old company that was founded by five world-leading Ph.D.s in the fields of genome editing, protein engineering, and molecular and structural biology. The five founders penetrated a very hot industry within the biotech/biomedicine market that has not only raised more than $1B since 2013 but also attracted many leading venture capital firms, private investors, and family offices, drawing a lot of attention to this growing industry. Recently, Editas’ competitor, Crispr Therapeutics, started a joint venture with the German giant, drug maker Bayer AG (OTC:BAYRY), which included a $335M investment from Bayer. Crispr plans to go public this year to finance some of the preliminary trials before testing technology in human trials in 2017.

Editas is working on a schedule that is similar to Crispr's and will use some of the proceeds from the IPO to fund preclinical studies and clinical trials before moving forward to perform in-human trials of gene editing, using the CRISPR technology. So far, no gene editing product has been approved by the FDA, and few clinical trials have been performed on humans. However, since the gene editing market is so young, not only have there been no in-human trials in the industry, but the regulation landscape is not yet finalized, thus predicting the cost of obtaining regulatory approval, as well as the time spent to do so, is not easy.

As Editas Medicine will go public this year and start preclinical studies, in-human trials are expected sometime next year. Thus, FDA approval is not in sight, and investors in this novel biotech company will have to be very patient while waiting for significant financial gains, i.e., Editas' monetization of the full potential of the CRISPR technology and commercialization of products, medication, and partnerships.

In the meantime, the company generates small revenues from its partnership with Juno Therapeutics (NASDAQ:JUNO). In May 2015, Juno and Editas agreed to partner on three research programs to utilize Editas technology together with Juno’s CAR and TCR technologies to treat cancer patients. In the agreement, Juno will pay Editas $25M upfront and up to $22M in the next three years.

Editas raised $163M in three funding rounds between 2013 and 2015 mainly from Flagship Ventures Management, Polaris Ventures Partners, and Third Rock Ventures, which hold together more than 40% of the company’s shares. As shown in the chart below, Editas Medicine priced its IPO shares at a mid-point range of $17, which reflects a 280% upside for the series B investors and more than a 1,000% return for the series A investors.

EDIT_chart 1_020116

The gene-editing market receives a lot of attention in the medical industry as well as from investors, and Editas IPO is likely to generate an incredible amount of interest compared to the small size of the offering and the size of the company. Even though there is a lot of buzz about the gene editing technologies, it is still very early for investors to see any benefits from a business that hardly generates any revenues and focuses on deliverables that are a few years away in an uncertain regulatory environment.

In IPOs like this when financial ratios and analysis don’t influence the investment decision, investors should buy-in only if they are willing to wait a few years before the company will start commercializing its products. The gene editing industry will be the next big thing in biomedicine technology; however, I’m not sure how much time it will take the technology to mature and become widely adopted. Biotech investors, with a very long investment horizon, might find this interesting. However, other investors who are not biotech-focused might want to wait before leaping in.

Lior Ronen Lior Ronen   on Amigobulls :
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