Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation.
Executive summary: CRISPR allows for genes to be edited with a degree of precision, efficiency and flexibility hitherto unprecedented. Its potential is therefore revolutionary and the applications to which it can be put are nearly limitless. The technology could accelerate meaningfully the development of novel forms of cell and gene therapy, the breeding of disease-resistant crops, and the emergence of clean fuels among others. Although still nascent, by 2025 the industry could be worth at least $7.5bn. Regulatory, practical and ethical concerns will need to be addressed, but this has not stopped a plethora of VC-funding, the emergence of many (listed) start-ups and the commitment of notable sums of capital from major pharma players. Illumina, the market leader in molecular diagnostics systems and software is currently our preferred way of accessing this important future trend.
Should we bring back the woolly mammoth? What might sound like an absurd idea is now well within the realms of possibility, enabled by a development that some scientists and biotechnologists have described as the biggest advance in their field for at least fifty years. Clustered regularly interspaced short palindromic repeats (abbreviated to CRISPR and pronounced ‘crisper’) sounds quite a mouthful, but the potential is huge. Put simply, using this novel technique can make extensive gene re-arrangements possible, accelerating engineering across the board, from microbes and plants to humans and animals. CRISPR is less about the science fiction of bringing back mammoths or giving pigs wings; rather, it is about making better models for understanding (and hence treating) diseases, improving chemicals for industrial production and doing basic research on what genes do.
By way of background, DNA lies at the root of each of us. It is best thought of as constituting the ‘instruction manual’ for all living cells. A complete set of DNA for any organism is referred to as its genome. The human genome comprises 23 paired chromosomes (organised structures of DNA found in cells) with six billion items of code, three billion inherited from each parent. Everyone has a unique set of DNA, which differs in countless ways from others, the diversity being a function of ‘errors’ arising and accumulating when the code is passed from one generation to another via reproduction. In humans, genetic variation accounts for many of the physical differences we see (such as height, hair colour etc.), but more importantly, mutations in genes can cause various kinds of serious disease. Discrepancies can also impact an individual’s response to certain drug treatments.
Gene-editing techniques have been around since the 1970s, when scientists in California pioneered methods such as cloning and the use of stem cells. However, these approaches were complex, costly and inefficient, primarily because there was no reliable way to direct DNA to exactly the right place in an organism’s genome (and when inserted in the wrong place, the risk of disruption to other genes would be high). By contrast, CRISPR’s approach is revolutionary. Indeed, its co-inventor best likens it to being analogous to how one might use a word processing programme to fix errors in a document. In other words, there is now, a precise way to find, remove and replace genes. CRISPR exists in certain forms of bacteria as an anti-viral defence system. It works by producing RNA, a molecule that can store portions of DNA sequences. After several experiments, scientists realised that when combining CRISPR with a protein called Cas9, it could serve as a gene-editing tool. For scientists, the task now is to make RNA molecules that can target any DNA sequence.
The benefits of this approach are significant, helping to prevent, cure and limit the impact of many diseases. At its most potent, CRISPR could drive a secular shift from the treatment of chronic diseases to a cure for them. For researchers, the technology is easy to handle, without the need for very sophisticated equipment and training, thereby reducing the cost and time of many experiments. It should also enhance research and development productivity. Using CRISPR can reduce the time not only to engineer mice genetically by up to 75% (equivalent to six months), but also to produce them more cheaply (by some 30%, per data from the University of Toronto).
Unsurprisingly, there has been huge interest from both the scientific and the investment community. To provide some context, there exist over 200 different forms of cancer, driven by some 500,000 mutations. Each year, approximately 14m new cases of cancer are diagnosed around the world, and roughly 8m die from the disease. By 2032, this figure may rise to some 22m deaths annually. Already, the cost of treating cancer in the US alone is over $130bn (all data courtesy of the US National Cancer Institute). Furthermore, consider that 1 in every 2,000 people is afflicted by a rare disease, such as muscular dystrophy or cystic fibrosis. Scientists believe that some 7,000 such diseases exist. For years, these have been all but ignored by the pharmaceutical industry; the science was difficult and the economics even harder. However, CRISPR may provide hope to these patients. Indeed, roughly a third of all submissions to the FDA in the past five years have been for rare diseases, and this number continues to grow.
As a tool to make changes, the applications to which CRISPR can be put are nearly limitless. These can be broadly categorised into six fields: cell and gene therapy; new drug development; animal health (harm-free breeding, precision-trait engineering etc.); food and agriculture (drought resistance, enhanced nutritional content etc.); manufacturing (fuel production, chemical synthesis etc.); and, fundamental research (such as population genetics). CRISPR has already been used in experiments to change cells in monkeys, mice, pigs and human embryos. In research trials, scientists have been able to reverse the genetic mutation that causes blindness, stop cancer cells from multiplying and make cells impervious to the virus that causes AIDS. Experiments at the Harvard Medical School have used CRISPR to edit pig DNA so their organs can be transplanted into humans. Meanwhile, a team at the University of California Berkeley have reported the use of CRISPR to make the Asian mosquito (anopheles stephensi, one of the major carriers of malaria), resistant to the parasite that causes the disease. In China, several studies have seen CRISPR already applied to agricultural livestock. Elsewhere, agronomist scientists have used CRISPR to render wheat invulnerable to fungi such as mildew. Plans are also underway to edit the allergens in peanuts that cause anaphylaxis.
Given that CRISPR is still at a highly nascent stage, sizing the market is not easy. Many projects are still in trial or development phase at present and only limited regulatory approvals have been given in the western world. Nonetheless, many expect the first fully commercial CRISPR treatments/applications to emerge within less than five years. At the end of 2016, the global genome editing market (comprising all the various technologies being used, including CRISPR) was worth ~$2.5bn, with academics accounting for over 60% of this market and the remainder formed by pharma and biotech demand. Consultants estimate that this figure could reach at least $5.0bn by 2020 and over $7.5bn by 2025. Longer-term, many believe that the major market growth driver will be less about research and more about how large pharma and the medical community can monetise the outcomes that CRISPR can engineer. The importance of reimbursement regimes may therefore matter more to long-term industry growth prospects than regulation.
We are, however, quite some way from this stage at present. Like all developments with revolutionary potential, CRISPR remains highly controversial, with the risk being that its evolution may open a Pandora’s box of problems. These can be summarised in (at least) three overlapping key areas: ethical/security; practical/technological; and legal/procedural. The most profound concerns centre on the argument that humanity does not have the right to engineer its own genetic future. Regulatory bodies around the world have, at least, been proactive in addressing this issue, making clear that the purpose of CRISPR is not to edit human DNA, but to cure diseases. Furthermore, from 2018 onwards in the US, the EU and the UK, every animal used in a lab must be declared and logged in a database. Despite the best intentions of regulators, the fear of DNA editing being used by bio-hackers for nefarious purposes cannot be fully dismissed.
Another worry relates to the fact that the implications of applying CRISPR are not yet proven and so the consequences (and side-effects) are unclear too. These may be both harmful and unpredictable, especially given the relative immaturity of the technology. Its very rate of change may also limit the ability of regulation to keep up effectively. Moreover, superior gene-editing techniques may also emerge, potentially eclipsing CRISPR. Finally, do not dismiss the possibility that CRISPR’s imminent commercialisation may be grounded in the near-term given that a patent war is currently ongoing between the two universities (the Broad Institute and the University of California) that claim to have discovered the technology.
These concerns have not stopped many start-ups emerging to exploit the opportunity, often funded by venture capital. Similarly, the large pharma businesses have also begun to establish partnerships within the field. From an investment point of view, there is no doubt that CRISPR is a significant new technology that could have a large impact on the treatment of generic diseases. The debate relates more to how effectively it can be implemented; if it is ready to be used in humans; and if it is derisked enough for an equity investment.
Three CRISPR pure-play businesses have already listed in the US. Editas is the longest established, with 35 issued patents and 500 applications pending. The company intends to begin human trials for its first application – the treatment of retinal dystrophy – later this year. Editas has also formed partnerships with Allergan and Juno Therapeutics. Another business within the field is CRISPR Therapeutics. Both Celgene and GSK are investors. The company is focusing on haematology and liver-related diseases, but has also formed partnerships with Bayer (for some specific haemophilia treatments) and Vertex (for cystic fibrosis). The other major listed player within the field is Intellia Therapeutics, backed by Novartis and Regeneron (who are both investors). Its current focus lies in liver and muscular treatments. All three business are currently capitalised at ~$500m. However, our preferred way of approaching the theme is via Illumina, capitalised at ~$25bn. The business is the leading player within the field of molecular diagnostics (i.e. sequencing and analysing DNA). It has also invested in several start-up businesses whose software has the potential to make gene editing more predictable, accessible and efficient. Since listing in 2000, Illumina has delivered annualised returns of ~15%.
Alexander Gunz, Fund Manager, Heptagon Capital
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