Intellia: Slim Hopes Of Near-Term Commercial Revenue, Bearish

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Investment Thesis

If you had invested in the CRISPR / Cas9 gene editing pioneer Intellia Therapeutics (NASDAQ:NTLA) five years ago, you would likely be well satisfied with your return to date – a ~285% return on your investment – although you may also feel that it could have been so much better – Intellia stock was up >900% at the end of August 2021. Alternatively, you may be of the opinion that the best is yet to come.

Intellia IPOd back in 2016, when it raised $108m at $18 per share, backed by the likes of biotech VC Atlas Ventures and Swiss Pharma giant Novartis (NVS). It was one of three companies that launched at around the same time with the purpose of taking the Nobel Prize-winning CRISPR/Cas9 technology and using it to develop medicines that could be used to treat human diseases.

The other two companies launched were CRISPR Therapeutics (CRSP), and Editas Medicine (EDIT). While Intellia and CRISPR derive their patents from the Nobel Prize winning duo Emmanuelle Charpentier and Jenifer Doudna and license them from the University of California and University of Vienna, together known as the CVC Group, with Intellia sub-licensing its patents from Caribou Biosciences (CRBU), Editas licenses patents from The Broad Institute at MIT.

Both these entities lay claim to establishing the first CRISPR patents, with the CVC Group claiming it discovered the technology, and the Broad Institute claiming it was the first to patent the technology for use in humans. Should either prevail in the decade long patent dispute, it could theoretically force the other to pay damages and royalties on sales that could cripple their business, but a definitive ruling may never be made, and in any case, none of these three companies has commercialized a drug product.

NTLA, CRSP, EDIT 5-year share price performance

NTLA, CRSP, EDIT 5-year share price performance. (TradingView)

As we can see above, of the three companies it’s CRISPR Therapeutics and Intellia that have realised the strongest gains – in 2021, both achieved market cap valuations >$10bn, with Intellia’s valuation reaching an all-time high of $13.4bn in August 2021, and CRISPR Therapeutics an all-time high of $15.5bn in January.

A fundamental difference between the two companies is that Intellia has advanced further in the in vivo treatment space – its shares gaining by >115% when management announced that its lead candidate, NTLA-2001 had reduced TTR Serum levels in six patients with the disease Transthyretin (ATTR) Amyloidosis using an intravenous injection – while CRISPR is close to a first ever approval for a CRISPR/Cas 9 drug, preparing to submit a Biologics License Application (“BLA”) to the FDA before the end of this year, for its therapy Exa-Cel, an autologous stem cell therapy for Sickle Cell Disease (“SCD”) patients.

The share price graph above illustrates the extent to which investors and market lost faith in both companies in the second half of 2021 and 2022. Many observers have claimed that CRISPR based gene editing is no different from other gene therapy approaches, just better marketed, and arguably, this argument can be backed up in two ways.

Firstly, Bluebird Bio, pioneering a lentiviral vector approach to gene editing, look set to win FDA approvals for two ex-vivo cell therapies this year – Beti-Cel and Eli-Cel in beta-thalassemia and cerebral adrenoleukodystrophy respectively – and could even receive approval for its SCD therapy Lovo-Cel ahead of CRISPR Therapeutics.

Secondly, you could argue that the development of lipid nanoparticles (“LNPs”) has dramatically improved the chances of commercialization for many different types of therapeutic approaches – messenger-RNA, RNA-interference, or gene-splicing technologies, for example whose major problem has been drug delivery, rather than their ability to effectively treat diseases once inside the target cells.

Nevertheless, both Intellia’s and CRISPR Therapeutics’ share prices have been picking up over the past three months, up 36% and 49% respectively. That has coincided with the end of a devastating bear market for biotech, but it also may reflect that the progress made by both companies – CRISPR in terms of proximity of commercialization, and Intellia in terms of proof of treatment duration – that’s beginning to win over the doubters.

With Intellia still trading at a 61% discount to its peak price, it’s tempting to wonder if the company’s stock can continue to make gains? The reality is that the company is still a long way – 2-3 years at least – from commercializing a drug, but its progress in-vivo is still the most advanced of any company and should NTLA-2001 make it to market the effect on Intellia’s share price could still be seismic.

It’s important not to forget that the therapies Intellia is developing are “one and done” treatments, in other words, they functionally cure patients after one dose, making them extraordinarily valuable.

There’s no doubt these types of therapies are worth waiting for, although the competition is arguably getting more intense, with the likes of Verve Therapeutics (VERV), Beam Therapeutics (BEAM), and Korean biotech ToolGen (also involved in the CRISPR patent dispute, making claims around patent infringement) all going public in recent months.

Before we draw a conclusion, it’s worth updating on Intellia’s various projects, and before that, providing a brief overview of the company.

Intellia Company Overview and Pipeline

Intellia has ~500 employees, “367 of whom were primarily engaged in research and development activities and 111 of whom have an M.D. or Ph.D. degree,” according to the company’s 2021 10K submission to the SEC.

The company is led by CEO John Leonard, who had formerly retired from his position of Chief Scientific Officer and Senior Vice President of R&D at AbbVie in 2013, before deciding to join Intellia in 2014 as Chief Medical Officer, and subsequently being promoted to CEO. Dr. Jennifer Doudna is still listed as Scientific co-founder of Intellia but appears to have little to do with its day-to-day running or drug development activities.

Intellia has an in vivo pipeline and an ex vivo, although it is the in vivo one that probably supports the bulk of its valuation.

Intellia In Vivo pipeline

Intellia in vivo pipeline. (Corporate Presentation)

As of Q121, Intellia reported a cash position of $995m, down from $1.1bn in Q121. The company earned $11.3m of collaboration revenues in Q121, and made a net loss of $147m. Net loss in FY21 was $268m. Q222 result will be released Aug. 4, and a similar scale of losses may result in further share price losses.

Intellia has a powerful partner in the form of US pharma Regeneron (REGN), which collaborates on the development of lead in vivo candidate NTLA-2001, 2 preclinical hemophilia A and B candidates, and also has:

exclusive rights to develop products for five additional in vivo CRISPR/Cas-based therapeutic liver targets and non-exclusive rights to independently develop and commercialize up to 10 ex vivo gene edited products made using certain defined cell types. (source: Intellia 10K)

My understanding is that Regeneron pays 25% of the costs of development of NTLA-2001, in exchange for a 25% share of profits from sales, if the therapy is commercialized, and also made a $70m upfront payment when the deal was first agreed in 2016, and a $30m equity investment, with another $100m or so of milestone payments on the table. Regeneron made a further $70m upfront payment and $30m equity investment in 2020 to develop the hemophilia assets.

Unless I’m missing something, these figures pale by comparison to the $1bn payment made by Vertex (VRTX), the Boston based pharma, to CRISPR Therapeutics, for an additional 10% share of revenues from its SCD asset Exa-cel, if commercialized.

Intellia does have other partners – Novartis has pledged $230m in milestone payments relating to development of certain CAR-T, hematopoietic stem cell (“HSC”) and Oogonial Stem Cell (“OSC”) assets, while VenCell, ONK Therapeutics, Kyverna, rewrite Therapeutics and SparingVision partner on immuno-oncology, NK Cell therapies, the technology platform, and Ophthalmology respectively, but nothing remotely as significant as the CRISPR / Vertex partnership at the present time.

Progress With NTLA-2001 – 12-Month Data Positive

As mentioned, it was the six-month data from NTLA-2001 in patients with Transthyretin (ATTR) Amyloidosis that sent Intellia’s share price soaring, offering hope of a first ever in vivo gene therapy approval, with the power to functionally cure a disease with a single injection.

On June 24 Intellia reported 12-month data from the same trial, this time including follow-up data from 15 patients with hereditary ATTR amyloidosis with polyneuropathy (“ATTRv-PN”) – nerve damage which can be caused by ATTR resulting in a stabbing, burning, or tingling pain.

Importantly, the data proved that the response to treatment with NTLA-2001 was durable at 12 months. The 93% and 98% maximum serum reduction experienced by the six patients receiving the highest dose (1mg/kg) were reportedly sustained over six months, with three patients reaching nine months follow-up with no evidence of a loss in TTR reduction. The press release also stated that:

Further, in the 0.1 and 0.3 mg/kg cohorts, patients have now reached 12 months of follow-up, and a durable response to treatment continues to be observed. Notably, patients in the 0.3 mg/kg cohort sustained an 89% mean serum TTR reduction at 12 months.

NTLA-2001 was also safe and well-tolerated, with 73% of patients reporting nothing worse than a Grade 1 adverse event, and only one patient experiencing a Grade 3 adverse event – vomiting, which may be ascribed to a concomitant history of gastroparesis.

This exciting news has failed to make much of an impact on Intellia’s share price, although perhaps it has helped stem losses, and put the stock back on an upward trajectory.

Management added that data from the cardiomyopathy arm of the study ought to be available in the half of this year, while a 0.8mg/kg dose has been selected for the second part of the trial, which is ongoing.

Alnylam’s Onpattro – approved to treat hereditary ATTR (“hATTR”), made sales of $153m in Q122, up 12% year-on-year, although if approved, NTLA-2001 would likely have a much higher list price given its potential ability to cure patients with a single dose.

Progress may appear to be maddeningly slow to some investors with the available data covering only a handful of patients, but in fairness to Intellia, the trial continues to enroll patients (up to 74 in total, with 38 in polyneuropathy and 36 in cardiomyopathy) and management believes that data from the trial ought to be sufficient for a pivotal trial to be initiated.

That may not happen for another year, but it’s critically important to establish duration and safety, and the results, if positive, will likely be worth waiting for.

Remaining In-Vivo Pipeline + Hopes for Ex Vivo

The only other in vivo drug making meaningful progress through the clinic for Intellia is NTLA-2002, indicated for Hereditary Angioedema (“HAE”), which affects ~6.500 people in the US. BioCryst (BCRX) Orladeyo, recently approved to treat HAE, is expected by BioCryst management to generate $250m of revenue in FY22, and achieve peak sales >$1bn.

NTLA-2002 is designed to “knock out” the KLKB1 gene with a single dose, and a Phase 1/2 trial is underway. Two dose-escalation cohorts have been initiated and interim data ought to be available in 2H22.

If that data is positive, it could provide the share price catalysts that NTLA-2001 12-month data could not, although as with NTLA-2001, the pace of progress is slow, and other company’s in vivo pipelines – most notably CRISPR’s – may be catching up.

Since the liver is the most easily accessible target, most gene therapy companies compete over the same handful of diseases, the hope being that extra-hepatic targets will follow once proof of concept has been established.

With Intellia not expecting to file an Investigational New Drug (“IND”) application for NTLA-2003, targeting Alpha-1 antitrypsin Deficiency (“AATD”), until 2023, and the 2 hemophilia candidates even further back in the development cycle, it’s understandable that investors may be wondering if it is worth waiting for an in vivo “one and done” therapy to make it to market, or if they are prepared to wait, thinking about betting on another company.

Intellia Ex Vivo pipeline

Intellia ex-vivo pipeline. (Corporate Presentation)

Turning to the ex-vivo pipeline, the Novartis partnered Sickle Cell Disease opportunity and the Acute Myeloid Lymphoma (“AML”) opportunities stand out, but can Intellia / Novartis beat Bluebird Bio or CRISPR to market? It seems highly unlikely, and it will equally be hard to improve on Exa-cel or Lovo-cel if they do indeed provide a safe, one-time curative treatment.

That leaves the AML cell therapy NTLA-5001. Cell therapies have made huge strides in recent years, and Bristol Myers Squibb has won drug approvals for Abecma and Breyanzi, indicated for Multiple Myeloma and Lymphomas respectively, whilst Gilead Sciences (GILD) has seen Tecartus approved in B-cell lymphomas and Legend Biotech (LEGN) has seen Carvykti approved, also in multiple myeloma.

Where does that leave Intellia? Again, apparently a significant way behind. NTLA-5001 specifically targets Wilms Tumor Type 1, expressed in 90% of AML blasts, and AML five-year survival rates are <30%, Intellia says, so there’s an urgent need for new therapies. NTLA-5001 is in the clinic, enrolling up to 54 patients, beginning with dose expansion and moving into expansion cohorts once a recommended dose has been established.

There are no shortage of companies trying to develop a cell therapy to treat AML, however – at least seven according to this post – and it would be hard to make the case that Intellia is a front-runner at this time.

Conclusion – Slow Progress and Cash Burn Is Putting Off Investors – They May Be Right

To summarize the current situation with Intellia, although the recent upturn in the share price is welcome, and the 12-month data from the NTLA-2001 studies are very encouraging, I find it hard to make the case that the company is worth more than its current market cap valuation of ~$5bn.

Although I would not agree with some investors that CRISPR technology is over-hyped – it clearly can be very effective – other factors such as drug delivery and the emergence of LNPs are proving equally important, and in that context, although Intellia may have been the first to provide clinical proof of concept for CRISPR in vivo, it may not be the last, and it may not be first to market based on current progress. Other “one and done” gene editing approaches are also available.

The lack of any near-term commercial revenues is troubling – even more so when Intellia is likely to burn through >$500m of cash in FY22, based on Q1 burn, with only $1bn available. CRISPR Therapeutics may be behind on the in vivo front, but if it commercializes Exa-Cel in 2023 it could have a blockbuster (>$1bn sale per annum) drug on its hands, and a ~$500m per annum revenue opportunity (profits are shared 40/60 with Vertex).

When a company has made a breakthrough as significant as Intellia’s with NTLA-2001, I would generally argue that patience is a virtue and investors need only bide their time, and I don’t blame Intellia for taking its time – its trials cannot be speeded up easily- but with no revenues likely for at least three years, a high cash burn, and other companies catching up, Intellia – formerly trading on potential – needs to start trading on something more tangible, in my opinion. The prospect of $1 – $2bn of annual revenues – if we’re being very generous – in 5-6 years makes for a forward price to sales ratio of 2.5 – 5x – not especially attractive – and when we factor in the risk of failure or significant competition, Intellia stock starts to look very expensive.

As such, I will give Intellia stock a “SELL” recommendation. Just as it was last year, the valuation is almost entirely wrapped up in NTLA-2001, and perhaps NTLA-2002 also.

These drugs could both be blockbusters, and perhaps it’s beyond the capabilities of other companies to develop something similar. That’s what keeps me interested in Intellia stock, but it’s becoming harder to keep the faith in a company that is years away from releasing a commercial product, however game changing that product may prove to be.

I suspect the losses likely to be announced when Q222 results are announced next week will create another sell-off. If the share price dips below $45, for a market cap valuation of <$3.5bn, I might be tempted to buy.

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