In February we had the Editas (EDIT) IPO which doubled promptly in the market. The entire biotechnology world is enamored with the potential of these core gene-editing technologies.

One of the companies mentioned in our note: A CRISPR view of Editas was Intellia so their offering has been much anticipated.

Here's our brief note on NTLA:

Bullets and Tickers

• Another plan on the CRISPR/CaS9 gene-editing technology.

• Two major collaborations – one with Novartis and the other with Regeneron. Circa $500M in potential milestone payments and circa 10% royalties.

• First IND planned for 2018. IPO expected to provide funding to carry the company through the next 36 months to their “inflection point.”

• If NTLA trades in line with their direct comparable EDIT the shares should settle between $30-35 from their proposed $17 filing range mid-point.

• IP risks remain, management team a bit financial/opportunistic versus scientific and investors should remember his is early development-stage stuff that works in mice but might be much harder to perfect in humans.

Tickers: Primary NTLA, Secondary EDIT, SGMO, ONCE.

Industries: Healthcare, Drugs - Themes: Gene Therapy, CRISPR

Positioning Commentary

Intellia

 (NTLA)

 is another well-known and well-financed player exploiting the profound ability to edit genes to cure genetic diseases. We wrote fairly extensively on one of their primary competitors, 

Editas

 (EDIT) which came public in February at $16/share and now trades at $32/share which is a $1.1B market capitalization.

Intellia is taking the same IP, wrapping a professional/financial management team around it and working to develop products.

Intellia has partnered with Novartis and Regeneron to work on drugs using both ex vivo and in vivo applications. Novartis put in $10M at the start with another $40M in technology access and research payments. Beyond that Novartis is on the hook for up to $230M in milestone payments and will pay mid-single-digit royalties on future products.

Regeneron followed with a $75M upfront payment and $50M equity investment. They also offer up to $320M in milestone payments and have agreed to high single to low-teen royalty rates on future drugs. This remains very early stage. Most results presented are from studies in mice. The first IND is not expected to be filed until 2018.

Intellia is focusing on liver diseases which they believe can leverage their investments in targeting and delivery into that organ to treat a broad array of diseases. Part of their special sauce here is the use of lipid nanoparticles for delivery.

Patents and IP remain in some dispute and this was covered during the roadshow. At issue is ownership of the basic patent which would fall either to Berkeley/Vienna/Charpentier (BVC) or Broad/MIT/Harvard (BMH). The phase we are in now is that the patent office has acknowledged that BVC was the first to file for the patent and has a senior position. Now the burden of proof is on BMH to prove that they invented it first even though they filed afterward. It will be another year or two before we know the outcome.

Intellia already has plenty of cash and would have $282M Pro-forma cash post-IPO which is projected to fund the company for the next 36 months. That would take them to the point of having IND filings and an “inflection point” in their progress.

Looking at valuation the company expects to have 35M shares outstanding post offer. Using the $17 mid-point that’s a market capitalization of $595M. Given that they will have $282M in cash and could hit milestones worth another $500M we’d expect the market capitalization to be closer to the $1.1B of EDIT. That suggests a post-IPO trading price of $30-35.

Concerns & Issues

Management: The company is a little heavy on financial types for a biotechnology firm at the forefront of innovation. Feels very opportunistic. That may be just fine as larger players are likely to buy these companies if they can make the technology work in humans.

IP: The foundations of CRISPR/CaS9 remain in play. So far investors have been happy to ignore the process and assume that the ultimate resolution won’t have any substantive impact on these companies. I’m not so sure that’s the only scenario.

Always Harder than it Seems: This is amazing technology and it’s been proven to work in certain situations. Going into humans and getting real drugs approved often takes a different and unexpected path. Investors are presented with straight lines but with biotechnology we know the road zigs and zags.

Conclusion

Editas (EDIT) proved that investor interest in this area is high. Intellia (NTLA) is another high-quality player. These are really call options “worth” about $1B each right now.

We will add links to the roadshow slide deck and provide a full transcript in the next few days.