There's more than one way to edit a genome.
Investors have clamored for emerging tools based on Crispr systems, and a handful of acronyms are now dotting the competitive landscape. In addition to Crispr there's Talen, ZFN, Arcus and more.
Arcus is in the spotlight this week.
Novartis (NVS) inked a collaboration valued at up to $1.4 billion with Precision BioSciences (DTIL) to develop Arcus gene-editing tools. The deal provides a financial lifeline to the small-cap biotech and further validates the novel technology platform.
And it follows Precision's research collaboration with Eli Lilly (LLY), announced in late 2020, that could be valued at as much as $2.5 billion.
Amid a biotech winter, is the latest development enough to move investors off the sidelines?
What Is Arcus Gene Editing?
Gene editing is the process of changing a person's genome to treat or cure a disease. Many gene editing tools rely on enzymes called nucleases. These enzymes cut DNA to facilitate gene editing. For example, first-generation Crispr tools often use the nuclease Cas9.
Precision BioSciences is developing a technology platform based on Arcus tools that rely on I-Crel nucleases. The tools have several potential advantages over their better-known Crispr counterparts.
Arcus gene editing tools are relatively small and have fewer components. The simplification could translate into more convenient treatments for patients and the ability to reach different parts of the body. Crispr tools are still "stuck" targeting genes expressed in the liver or editing cells removed from a patient. Arcus tools could be designed to target genes in the liver, muscles, brain, and bone marrow more easily.
For example, Eli Lilly has tapped the technology platform to develop gene editing tools targeting the liver, muscle, and brain. Novartis is interested in exploring the potential for Arcus tools to treat or cure blood disorders such as sickle cell disease.
Does Novartis De-Risk Precision BioSciences?
Inking collaborations with two of the world's largest drug developers is meaningful, but it may be too soon for investors to celebrate.
Precision BioSciences earned $75 million in cash upfront from Novartis and could earn tens of millions of dollars in milestone payments in the next 24 months. Combined with a $50 million stock offering, the company's cash runway now extends to the end of 2024.
Additionally, Arcus tools could be used to perform gene editing directly inside the body. That could offer notable advantages over Crispr tools in development, which need to harvest cells from patients, engineer them in the lab, and then administer them to patients.
That's about where the positive news ends. Precision BioSciences' cash runway may extend to the end of 2024, but that may not be long enough to collect meaningful data from clinical trials. The Eli Lilly collaboration was formed over 18 months ago, but has only recently selected its first Arcus drug candidate. That means a clinical trial is still at least 12 months away. It will take even longer for Novartis to initiate a clinical trial in blood disorders.
Worse, the company issued a public stock offering right after announcing the Novartis collaboration. The offering will raise up to $50 million in cash and increase the number of shares outstanding by 57%. That's a lot of dilution -- and it was poorly timed and perhaps unnecessary altogether.
The most honest take is that Precision BioSciences has done a great job finding partners to help develop Arcus gene editing, but it's still a risky investment. Investors need to acknowledge Eli Lilly or Novartis could walk away at any time. In fact, it happens often in drug development! Gilead Sciences (GILD) returned the rights to a hepatitis B program to Precision BioSciences two years ago after deprioritizing the program.
In other words, validation from a pharma titan or two can go a long way, but validation from positive clinical data is much more important. Unfortunately, that's still years away.
