Intellia: One Patent Ruling Turns The Industry Upside Down – Seeking Alpha

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The PTAB's ruling against UC Berkley turned the CRISPR space upside down. Sleepy biotechs such as Editas Medicine (NASDAQ:EDIT) became popular overnight (at least for a few days), while favorites like Intellia Therapeutics (NASDAQ:NTLA) and CRISPR (NASDAQ:CRSP) saw their shares drop. Pundits believe that NTLA and CRSP, who license CRISPR/Cas9 tech from UC Berkely, will need to negotiate a new license from the Broad Institute of Harvard and MIT. In a recent press release published last Friday, NTLA alluded to this prospect. However, NTLA will likely wait before seeking a new license until UC Berkley's appeal result comes out. It doesn't make sense to sign a license with the Broad Institute only for an appeal to reverse the verdict back in UC Berkley's favor. Second, there is uncertainty over the willingness of the Broad to license CRISPR/Cas9 tech, at least in certain areas, given its contract provisions with EDIT. For example, NTLA and EDIT have hemoglobinopathies programs targeting Sickle Cell Disease "SCD" and Beta-Thalassemia Major "TDT." The Broad Institute/EDIT license contains provisions that limit the Broad institute's ability to license CRISPR/Cas9 for products under development by EDIT.

I expect NTLA's management to talk down the long-term impact of the ruling, similar to UC Berkely, which stated that it still maintains 40 foundational patents, aside from the thirteen covered by the verdict. However, I believe that our previous investment thesis is no longer valid, and while I continue holding NTLA shares, my speculative trade has become more uncertain.

NTLA projected leadership in the CRISPR space, with an aggressive pipeline that seemed to mirror an entrepreneurial spirit, manifested in its flagship ATTR investigational drug, the first in-vivo therapy targeting liver cells. Promising clinical data from the ATTR program solidified this image, outpacing competitors such as CRSP, whose in-vivo liver programs are still in the pre-clinical stage. EDIT chose a more trodden path, focusing on well-studied areas, namely hemoglobinopathies and ocular diseases, two popular choices in the industry due to ease of delivery and established literature, increasing chances of clinical trial success.

However, the recent ruling unveiled weaknesses around its technological prowess. For example, NTLA's strategy for treating genetic diseases mirrors limitations of CRISPR/Cas9, contrary to what Dr Jennifer Doudna and Dr Emmanuell Charpentier led us to believe, depicting CRISPR as an ultimate tool for gene editing. Many scientists now think that gene treatments will take multiple forms and technologies.

NTLA-2002, NTLA's latest program to enter the clinical stage, is one example. Hereditary Angioedema "HAE" is caused by a mutation in the SERPING1 gene, leading to deficiency in the C1 inhibitor protein and a subsequent buildup of bradykinin. Instead of fixing the SERPING1 gene, NTLA-2002 aims to knock out the kallikrein B1 gene, the DNA responsible for producing bradykinin to achieve a biological balance. Another example is NTLA's NTLA-2001 program. Instead of fixing the mutated TTR gene, the investigational drug completely knocks it out, solving the problem of ATTR accumulation but causing problems around vitamin A deficiency, reducing the number of times its edge over alternative therapies. Gene knockout is also the industry's strategy to treat SCD and B-Thal. Instead of fixing the root of the problem, the companies created a gene treatment to knockout a different gene to increase the production of fetal hemoglobin, which also reflects the nascent stage of the in-vivo programs.

Moreover, NTLA is not the first company to deliver genetic material to liver cells. Alnylam (NASDAQ:ALNY) developed Onpattro, which temporarily silences the TTR gene breaking down its mRNA. Similar did Ionis (NASDAQ:IONS) when it created Tegsedi. These two therapies also use Lipid coating to deliver the drug, similar to NTLA-2001, which licenses the Lipid Nanp Particle "LNP" tech from Novartis (NYSE:NVS). I believe these technological limitations restrict the valuation of NTLA.

From a financial perspective, the recent ruling casts uncertainty over how much NTLA will have to pay for a CRISPR license if UC Berkley loses its appeal. Beyond patent disputes, each of NTLA's programs has its unique commercial prospects, influenced by many factors, including disease prevalence, severity, availability of alternative therapies, and convenience to patients and physicians. bluebird bio's (NASDAQ:BLUE) failure to commercialize Zynteglo and ABECMA in Europe -the latter now owned and marketed by 2seventy (NASDAQ:TSVT)- gives a somber warning that clinical success and regulatory approval don't mean commercial success.

I believe that NTLA's two in-vivo programs targeting liver tissue have enough prevalence to achieve commercial success. Other alternative therapies with less efficacy and convenience generate millions to other biotechs. For example, Shire (private British biotech) generated $699.3 million from Cinryze, a C1 inhibitor for the treatment of HAE, in 2018. Unlike NTLA-2002, Cinryze is a life-long medicine costing $350,000 annually. Given that NTLA is a one-time treatment, NTLA's management will be able to negotiate a higher price if and when NTAL-2002 is approved.

NTLA-2001 also makes commercial sense, albeit not as much as NTLA-2002, ruefully for Regeneron (NASDAQ:REGN), NTLA's partner in NTLA-2001( NTLA runs NTLA-2002 independently). As mentioned above, NTLA-2001 could be very profitable. Alternative therapies such as Onpattro generated 120 million in Q3 2021, translating to $480 million annually. NTLA-2001 is also more convenient as a one-time therapy compared to Onpattro, a life-long treatment administered periodically in a clinic through an IV, a process that takes hours. However, the amount insurance companies will be willing to pay is limited, given that ATTRv is also mostly diagnosed in mature individuals (Median age at diagnosis is 62). These dynamics will factor in the pricing of NTLA-2001 if and when it is approved.

The nature of NTLA's therapies as one-time medicines could have implications on its long-run profitabilities. Although revenue might spike initially, revenue will depreciate as the patient pool starts to dry out in the long run. Eventually, NTLA-2001 revenue will be proportional to annual incidence, which is pretty low.

NTLA's other clinical-stage programs are ex-vivo therapies in Hemoglobinopathies and acute myeloid leukemia. Novartis is leading the SCD program, funded by the Bill and Melinda Gates Foundation, which procured NVS to create an affordable SCD therapy in developing countries where the disease is most prevalent. BLUE's effort to commercialize Zynteglo failed because of production cost and the concentration of B-Thal in developing nations that cannot pay for Zynteglo, which BLUE priced at $1.8 million per injection. Notably, European National Health Services also refused to pay. Hopefully, NTLA and NVS will succeed in creating a low-cost SCD therapy, which could help market the therapy given the crowdedness of the field. Almost all CRISPR biotechs have hemoglobinopathies programs, namely SCD and B-thal, and all main CRISPR biotechs use the same strategy; increasing fetal hemoglobin. Thus, price differentiation could be a critical factor for marketing.

NTLA's Acute Myeloid Leukemia "AML" program has a high commercial potential, given the limitations of current therapies, high death rates, and difficulty in treatment. In 2020, more than 20,000 new cases were diagnosed in the US. The company only recently received acceptance for its IND and began screening for trial patients. Investors should expect the first data in the first half of 2023.

NTLA stood out from the crowd with a differentiated pipeline with a market image as an entrepreneurial force in the CRISPR space. However, the current PTAB ruling revealed weaknesses in its IP portfolio, and it appears that its technological prowess is overrated.

I don't believe NTLA will outperform the market this year. Investors should expect volatility until the CRISPR/Cas9 license issue is sorted. I expect management to talk down the effect of the ruling during Barclays Global Health Conference scheduled for March 15, 2022.

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Intellia: One Patent Ruling Turns The Industry Upside Down - Seeking Alpha