CRISPR Therapeutics: Positive Exa-Cel AdCom Opens Door For Historic Approval

Investment Overview

Swiss gene therapy specialist CRISPR Therapeutics AG (NASDAQ:CRSP) and partner Vertex Pharmaceuticals Incorporated (VRTX), the >$90bn market cap, Boston-based Pharma giant, took a step closer to a historic first approval for a CRISPR/Cas9 gene editing therapy yesterday, after an FDA Advisory Committee raised few concerns around the safety of exa-cel, an autologous, ex vivo cell therapy indicated for Sickle Cell Disease ("SCD"), and transfusion dependent beta thalassemia ("TDT").

Vertex and CRISPR Therapeutics have been partners since 2015, and have been co-developing exagamglogene autotemcel, or exa-cel for short, since 2017, initially agreeing to share development costs and worldwide revenues equally. in 2021, When Vertex agreed to pay CRISPR Therapeutics $900m in exchange for increasing its share of future revenues from 50%, to 60%, the latter's share price reached its all-time high value of $200 per share.

Pre-market today, CRISPR Therapeutics stock was priced at $39 per share, yet the company is now closer than ever to launching its first commercialized product - exa-cel's Prescription Drug User Fee Act ("PDUFA") date arrives on December 8th, and on that the day, the FDA will either agree to approve exa-cel for commercial use or issue a Complete Response Letter ("CRL"), outlining its reasons for rejecting the drug's Biologics License Application ("BLA").

Brief Explanation of CRISPR/Cas9 Gene Editing, Its Effect On Sickle Cell Disease Patients

CRISPR/Cas9 gene editing technology evolved as a naturally occurring defense mechanism that protects bacteria against viral infections and was adapted as a mechanism for genetic engineering by Drs Emannuelle Charpentier and Jennifer Doudna, who received the Nobel Prize for Chemistry in 2020 in recognition of their work. Dr Charpentier is the Scientific Co-Founder of CRISPR Therapeutics. According to the company's 2022 10K submission:

The CRISPR/Cas9 technology they described consists of three basic components: CRISPR-associated protein 9, or Cas9, CRISPR RNA, or crRNA, and trans-activating CRISPR RNA, or tracrRNA. Cas9, in combination with these two RNA molecules, is described as "molecular scissors" that can make specific cuts and edits in selected double-stranded DNA.

Dr. Charpentier and her collaborators further simplified the system for use in gene editing by combining the crRNA and tracrRNA into a single RNA molecule called a guide RNA. The guide RNA binds to Cas9 and can be programmed to direct the Cas9 enzyme to a specific DNA sequence based on Watson-Crick base pairing rules. The CRISPR/Cas9 technology can be used to make cuts in DNA at specific sites of targeted genes, providing a powerful tool for developing gene editing-based therapeutics.

As I wrote in my last note on the company back in September:

SCD and TDT sufferers have abnormal hemoglobin proteins that cause red blood cells to become misshapen and obstruct blood vessels, resulting in "severe pain, infections, stroke, overall poor quality of life and early death" (quote taken from CRSP 2022 10K / annual report).

Exa-Cel targets a gene encoding a protein known as B-cell lymphoma/leukemia 11A ("BCL11A"), which controls levels of fetal hemoglobin ("HbF"), a substance that is usually only present in newborn infants, although research has shown that patients whose HbF levels persist into adulthood are usually asymptomatic for SCD or TDT.

By reactivating the BCL11A gene, exa-cel can upregulate fetal hemoglobin in patients and prevent red blood cells from becoming misshapen, offering an apparently permanent cure to a debilitating and lifelong disease.

What Was Under Discussion During Yesterday's Adcom? Background

Naturally, with a gene editing technology as powerful as CRISPR/Cas9, safety concerns abound, most particularly around "off-target toxicity," or "off-target edits," which essentially means exa-cel making unintended changes to other genes that could create unexpected health problems for a patient, for example leading them to develop blood cancers.

Often, when considering whether to approve a drug or therapy with a novel mechanism of action, the FDA will convene an Advisory Committee, or "AdComm" for short, to discuss technical aspects of the drug's mechanism of action ("MoA"), and usually, safety and efficacy are the primary topics of conversation.

In the case of exa-cel, the efficacy of the drug is hard to challenge. In June, CRISPR Therapeutics shared a pre-specified interim analysis from its CLIMB-121 pivotal study, from 17 evaluable patients with severe SCD, at the Annual European Hematology Association ("EHA") Congress as follows:

• 16/17 (94.1%) achieved the primary endpoint of freedom from vaso-occlusive crises (VOCs) for at least 12 consecutive months (VF12) (95% CI: 71.3%, 99.9%; P=0.0001). The mean duration of VOC-free was 18.7 months, with a maximum of 36.5 months. 17/17 (100%) achieved the key secondary endpoint of being free from hospitalizations related to VOCs for at least 12 consecutive months (HF12) (95% CI: 80.5%, 100.0%; P<0.0001).
• Increases in fetal hemoglobin and total hemoglobin occurred early, within the first few months, and were maintained over time. In the analysis of all patients who received exa-cel, mean fetal hemoglobin was more than 30% of total hemoglobin by Month 3 and was then maintained at approximately 40.0% through follow-up, with pancellular distribution.
• The mean proportion of edited BCL11A alleles was stable over time in bone marrow and peripheral blood, indicating successful permanent editing in the long-term hematopoietic stem cells.

Although there is no longer-term data available, the evidence appears to strongly point to exa-cel offering at least a multi-year, and possibly a permanent cure for SCD, allowing patients to lead active, largely pain-free lives who would otherwise be subject to regular and exceptionally painful "vaso-occlusive crises" ("VoCs"), and regular hospitalizations. It should also be noted that CRISPR Therapeutics/Vertex will ask patients from all of its pivotal studies to participate in an open-label study, which will follow their progress for up to 15 years post-infusion.

The FDA's AdCom - which convened members of its Cellular, Tissue, and Gene Therapies Advisory Committee - was in general agreement that exa-cel demonstrated compelling efficacy, and unusually for an AdCom, the panel was not asked to vote on whether the FDA ought to approve the drug, or whether the benefits of the therapy outweighed the risks, which is usually the case (although the FDA is not bound to follow the advice of the AdCom, and, infrequently, goes against it).

Instead, the FDA indicated it wanted the panel to speculate about long-term safety issues, specifically around off-target editing. In its briefing notes, the agency states:

The exa-cel drug product is produced by genome editing of patient HSPCs using CRISPR/Cas9 genome editing. CRISPR/Cas9 genome editing has the potential to produce unintended genomic alterations or off-target editing.

These changes can occur both at or near the target site or at other off-target regions in the genome with homology to the guide RNA ("GRNA") sequence. These unintended alterations can also occur at different frequencies and in different locations in the genome based on sequence variation in the target population.

The agency goes on to note that:

In their evaluation of off-target editing for exa-cel in the target population, the Applicant used both in silico and cellbased assays. However, the limited amount of sequencing data present in the reference database for the in silico analysis may not adequately capture variants in this population.

For the cellular off-target analysis, the Applicant used HSPCs from a small number of healthy donors, transfusion-dependent β-thalassemia (TDT), and SCD donors. Additionally, the healthy donor cells may not adequately capture off-target editing in exa-cel due to potential differences in the chromatin landscape in SCD donor cells.

Essentially, the FDA was questioning whether the safety analysis conducted by CRISPR Therapeutics / Vertex was comprehensive enough, or whether more studies ought to be conducted "to inform the risk of off-target editing in patients who receive exa-cel for treatment of SCD."

What Was The AdComm's Verdict On Issues Raised By The FDA?

The concerns expressed by the FDA are broadly understandable. The FDA points out that, to search for instances of off-target editing, CRISPR Therapeutics / Vertex used the:

1,000 genomes project database that has whole genome sequencing ("WGS") data for 2,504 individuals. Of this, sequencing data were from 661 individuals of the target population. In this group, only 61 WGS datasets were collected in the United States and all datasets were from individuals who were located in the southwest United States.

The FDA pointed out that a recent study made use of a tool, CRISPRme, that used variant information from the Human Genome Diversity Project (HGDP), which is considered more diverse compared to the database used in CRISPR Therapeutics / Vertex studies. With regards to HSPC's, the agency comments:

The Applicant used HSPCs from a limited number of samples from healthy subjects (n=3), TDT subjects (n=3), and SCD subjects (n=3) to perform cellular off-target analysis. It is unclear whether the analysis using this limited sample size will provide for an adequate understanding of the potential risk of off-target editing. In addition, SCD has been reported to impact stress, 6,7 chromatin,8 and HSPC function.9,10 These factors can potentially change the chromatin landscape in SCD donor cells compared to healthy donor cells.

The terminology being used and subject matter being discussed may be difficult for the layman to understand, but essentially, as mentioned above, the agency was asking its AdComm to rule on whether CRISPR Therapeutics / Vertex had cast its net wide enough when searching for off-target edits and what their impact may be.

Ultimately, whilst sympathetic to the FDA's concerns, and while agreeing that sample sizes are small, the panel seemed to conclude that there is a limit to the amount of safety tests that can be carried out and that conducting further studies would not necessarily de-risk exa-cel any more than it is today.

The AdCom began with presentations from gene editing experts Fyodor Urnov, of the University of California, Berkeley, and Daniel Bauer, of Boston Children's Hospital. After being quizzed by the panel, it would probably be fair to conclude that both presenters felt that "the time is now" for launching a CRISPR therapy such as exa-cel, and that although, theoretically, off-target editing could result in a patient developing severe health issues such as leukemia, there was equally no evidence that this was likely to happen.

Later on in the day, the panel heard from patients who had participated in studies with exa-cel, and benefitted from the therapy SCD is a disease that predominantly affects people of African descent. Generally, the patients interviewed had positive things to say about the therapy, such as the fact they no longer suffered from VoCs, were generally pain-free, and were able to live much fuller lives post-surgery.

In the end, the AdComm finished ahead of time, and the tentative conclusion that could be drawn from panel members is that continuing to withhold the therapy from patients while more safety studies are conducted would be, ethically, the wrong approach, given its demonstrable efficacy, and value to patients, within an area of high unmet need. There are other therapies available to treat SCD, although nothing on the market at the present time comes close to offering patients the same relief from the symptoms of the disease, which often leads to premature death.

It should be noted, however, that exa-cel is not the only potentially curative therapy close to securing approval in SCD. Bluebird Bio's lovo-cel uses a similar approach to exa-cel, albeit using a proprietary lentiviral vector ("LVV") gene addition platform, as opposed to CRSPR/Cas9, to deliver the fetal hemoglobin gene to patients.

Since Bluebird has already secured approval for two other therapies using the same technique, no AdComm has been convened in relation to its BLA for lovo-cel, and efficacy and safety are comparable to exa-cel. The PDUFA date for lovo-cel arrives on 20th December, just a couple of weeks after exa-cel's PDUFA.

A major difference however is that BlueBird, heavily loss-making in recent years, and reporting a cash position of $245m as of Q2, has nothing like the marketing resources, or commercial infrastructure of Vertex, which has >$11bn of cash at its disposal. CRISPR Therapeutics itself reported a cash position of ~$1.8bn as of Q2.

Looking Ahead - Is Approval For Exa-Cel Now A Near Certainty? And How Will It Affect CRISPR Therapeutics' Share Price

After yesterday's AdCom it would probably be fair to say that the positive efficacy results that exa-cel has achieved have been rubber-stamped by a panel of experts and that the consensus on safety is that the time may now be right for the first commercial launch of a CRISPR/Cas9 gene editing therapy, especially one capable of bringing so much additional benefit to patients versus current standard-of-care therapies.

It's worth noting, however, that the share price of CRISPR Therapeutics has risen <15% in trading so far today, and that is in spite of the fact it began the day trading at a near 80% discount to its January 2021 highs of ~$200. There are several reasons for this.

Firstly, it is worth noting that yesterday's broadly positive AdComm provides no guarantee that the FDA will opt to approve exa-cel on December 8th. The FDA is nothing if not unpredictable, and an argument could be made that, with Bluebird's lovo-cel also up for approval, using an MoA that has already been approved, the FDA could insist that CRISPR Therapeutics / Vertex conduct more safety tests.

Personally, I'd consider this unlikely, when we consider Vertex's superior ability to mount a nationwide launch campaign and reach many more patients, but the FDA has certainly made more controversial decisions in its history.

Secondly, it's also important to recognize the limitations of ex-cel. This is an autologous, ex-vivo therapy, and that means that patients undergoing treatment with exa-cel face a ~4-week stay in hospital. First, patients' cells must be harvested, which requires them to undergo a lengthy and painful preconditioning regime similar to chemotherapy before their cells are engineered ex-vivo and then re-infused. Even dealing with the aftermath of such a treatment and making lifestyle readjustments can be challenging in multiple ways.

Some patients may conclude that the exa-cel therapy is simply too risky, whilst others believe that the mostly black patient population will be mistrustful of a healthcare system that has failed to provide adequate treatments in the past. Furthermore, the therapy is likely to cost in excess of $2m, and although Vertex is confident health insurers will be willing to reimburse for exa-cel, given the costs of administering care to an SCD patient over a lifetime significantly outweigh the costs of treatment with exa-cel, the process may take time. Another issue is a lack of treatment centers capable of carrying out the complex procedures required for cell therapy.

Ultimately, CRISPR Therapeutics / Vertex believes that the addressable patient pool for exa-cel treatment will number ~20,000. If we multiply that by $2m, the mooted list price, we have a market opportunity of $40bn, and if we multiply that by 40%, CRISPR Therapeutics' share of revenues, we get to $16bn. If we then conclude that only 2.5k patients may be treated each year, we get to a peak annual revenue figure for the company of ~$2bn.

Although CRISPR's market cap valuation today is only $3.4bn, the company is heavily loss-making, to the tune of >$(650m) in 2022, although net losses across 1H23 have been <$150m. If we discount the peak revenue opportunity to ~$1bn per annum based on competitive threats e.g. lovo-cel, slow uptake among patients, a lack of treatment centers, or even a discount for the risk of a flat rejection from the FDA, you could make the case that CRISPR Therapeutics' current valuation is appropriate, at ~3.5x expected sales of exa-cel.

Concluding Thoughts - Why I Remain Sold On CRISPR Therapeutics' Upside Potential

Despite the slightly pessimistic scenario I have outlined above, I continue to believe that CRISPR Therapeutics stock remains significantly undervalued, and although yesterday's AdComm may have failed to move the share price needle significantly, I suspect that an FDA approval come December 8th could have a profoundly positive effect on the company's share price and valuation.

In this post, I have not discussed any of the other projects the company is working on, although I covered them in more detail in my last post on CRISPR Therapeutics back in September.

As well as an immuno-oncology candidate that has shown "durable complete remissions with allogeneic CAR-T", and could be the first allogeneic (when cells to be engineered ex-vivo are drawn from a donor, rather than the patient themselves, speeding up the process of cell therapy, and eliminating the need for preconditioning) therapy ever approved, CRISPR Therapeutics is also looking at therapy for Type 1 diabetes alongside partner Vertex, and its in-vivo pipeline i.e. ready-made therapies that can be injected into a patient as opposed to requiring cell extraction and ex vivo engineering - is amongst the most advanced of any company.

In fact, CRISPR Therapeutics is already working on easing the preconditioning burden for exa-cel patients, opening up the therapy to perhaps as many as 350k SCD patients, and an in-vivo approach - a game-changer that could make exa-cel available to a patient pool of >350k patients. It should not be forgotten, also, that if exa-cel is approved in SCD in December, it is highly likely to be approved in TDT a few months later, increasing the initial addressable patient population by a further ~7k.

Bearing all of this in mind, I continue to believe CRISPR Therapeutics stock is substantially undervalued and therefore continue to give the company's stock a "buy" recommendation.

Even if yesterday's positive AdComm has not sent the company's stock price soaring, it seems to have had a positive effect, and if the company can negotiate the final hurdle and secure approval for exa-cel on December 8th, I am expecting strong share price growth in the short and long term, as the company becomes a commercial-stage Pharma, and its technology further is validated.

In my last note on CRISPR Therapeutics I quoted the company's CEO Sam Kulkarni's comments - made during a recent fireside chat at Citi's 18th Annual BioPharma Conference in September - as follows

The next part of the journey for the company is how do you become a $25 billion company in the next three to four years?

I admire the CEO's ambition, and although my feeling is a $25bn valuation may be asking too much, I would be confident the company can recapture former highs of >$200 within a couple of years of exa-cel's approval, should the therapy be approved, as seems likelier today than it did yesterday.

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