Stock Analysis & Ideas

Editas Medicine: Here’s What Might Trigger More Downside

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Editas Medicine has seen its share price drop more than 42% year-to-date. However, its unattractive portfolio of products could mean that there might be more downside potential left.

Bearish sentiment toward biotech developers, coupled with an uninspiring pipeline of products in development, could trigger more downside for Editas Medicine (EDIT) stock. Also, given the strong geopolitical and macroeconomic headwinds, I think a neutral stance on this stock is appropriate for now. In addition, although the balance sheet is still in good shape and can financially support the development of novel therapies for a few more years, the company needs to start turning a profit.

EDIT Stock’s Smart Score Gives It a Neutral Rating

According to TipRanks’ rating system, which is powered by quantitative data and investor sentiment, the stock scores a 5 out of 10, which equates to a neutral rating.

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EDIT Stock’s Portfolio Includes Innovative Treatments for Serious Conditions

The company’s portfolio includes a Phase 1/2 clinical trial of a treatment called EDIT-101 for Leber Congenital Amaurosis (LCA), a form of inherited retinal malformation that results in severe vision loss that occurs at an early age.

The company is also developing a treatment called EDIT-102 for Usher Syndrome 2A (US2A). Usher syndrome type 2A is a genetic condition that causes hearing loss from birth. In addition, it also causes retinitis pigmentosa, which gradually leads to vision loss due to retinal degeneration.

The company is also developing EDIT-301 for the treatment of patients with sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDBT).

  • SCD is an inherited red blood cell abnormality consisting of a mutation in the hemoglobin gene that is responsible for the significant presence of abnormal hemoglobin in red blood cells. Without drug therapy, the supply of tissues and organs with sufficient oxygen via the bloodstream is not guaranteed.
  • TDBT is a form of hereditary anemia that is responsible for a structural change in hemoglobin. Since this disease is widespread in the Mediterranean region, it is also known as Mediterranean anemia. TDBT is the most severe form of Mediterranean anemia that is fatal without drug therapy and/or blood transfusions.

In addition, the company is developing engineered natural killer cell treatments for various cancers and neurological disorders.

How Common are These Conditions?

LCA is a rare disease, statistically affecting no more than 0.002% to 0.003% of births. Available statistics also suggest that LCA is the leading cause of congenital blindness or severely impaired vision in children. US2A is also a rare disease because the syndrome affects no more than 10 out of 100 thousand people living worldwide. In addition, SCD is still considered a rare disease because only a few million people out of the world’s population of 7.97 billion people (as of 2022) live with it.

EDIT-101 Update is Unlikely to Push Editas Stock Higher

The company is advancing its flagship product candidate, EDIT-101, for LCA patients. As for the “BRILLIANCE” trial of the EDIT-101 product, an update is expected sometime in the second half of 2022. However, due to the rarity of the disease, there may not be significant market interest in either the lead candidate against LCA or any other product currently in the company’s pipeline. As a result, any update probably won’t have a huge impact on the stock price.

Hopes of an update for EDIT-101, or other rare disease treatments, aren’t enough to justify a bullish stance on this stock, which among other things, will continue to suffer from additional headwinds.

Editas Medicine Remains an Unprofitable Company

As Editas is still in its clinical phase, very little revenue was generated in the second quarter. In addition, continued development of the pipeline brought Editas’ operating expenses to $217.65 million over the past 12 months. As a result, the company’s net loss was $53.5 million for the second quarter of 2022 compared to a net loss of $55.26 million for the same quarter in 2021.

With cash and cash equivalents of approximately $452 million as of June 29, the company still has enough runway to pay suppliers and meet its financial obligations for a few years, assuming the operations don’t bring in cash.

EDIT Stock Can Drop Further

Editas Medicine has an unattractive portfolio of products that makes a significant rise in the share price unlikely, as do macroeconomic headwinds. In addition, the stock has a 14-day Relative Strength Index (RSI) of 45.12, suggesting the stock price is neither overbought nor oversold. This indicator suggests that there might be downside potential left despite the sharp fall in stock price on a year-to-date basis.

The indicator ranges between 0 and 100. A value under 30 means that the stock is oversold, while a value over 70 means that the stock has reached the overbought level.

Is EDIT a Good Stock to Buy?

In the past three months, eight Wall Street analysts have issued a 12-month price target for EDIT. The stock has a Hold consensus rating based on three Buys, four Holds, and one Sell. The average EDIT price target is $24.57, implying 60.5% upside potential.

EDIT Stock’s Unattractive Portfolio is Nothing to Get Excited About

EDIT’s share price has fallen significantly over the course of the year and can still fall due to the lack of catalysts. Furthermore, the current market environment is not suitable for biotechnology developers. As a result, given that the company’s portfolio is not very attractive, it seems like there are better opportunities elsewhere.

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