Editas Medicine Is Great. Here's Why You Shouldn't Buy It.

The biotechnology sector is a thrilling arena for investors, with a history of delivering groundbreaking medical innovations that have led to massive shareholder returns. Editas Medicine (NASDAQ: EDIT) is a promising clinical-stage company that has captured Wall Street's attention at the forefront of the gene-editing revolution with a unique approach to CRISPR technologies.

On the other hand, Editas faces a long road ahead before delivering its first Food and Drug Administration (FDA) approved therapy and reaching its goal of transforming into a commercially sustainable biotech. The stock, with a market capitalization of $170 million, has also been extremely volatile, down 62% over the past year despite a sharp 32% rebound in the past month as of this writing.

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Here's why you should proceed with caution if you're thinking about buying shares of Editas Medicine for your portfolio.

Image source: Getty Images.

What does Editas Medicine do?

Editas Medicine is developing a CRISPR gene editing system to address serious and rare conditions, such as sickle cell disease, beta thalassemia, and inherited eye disorders. Acting like molecular scissors, the CRISPR/Cas9 technology uses proteins to target specific DNA sequences in a person's genetic code, precisely addressing diseases caused by genetic mutations. More than just a treatment, this personalized medicine aims to deliver durable, curative solutions.

Compared to larger biotech players pursuing alternative genomic therapies, Editas stands out with its "in vivo gene editing upregulation strategy." Rather than solely removing or replacing defective genes in the more traditional ex vivo approaches, Editas' method edits DNA directly in the body to enhance beneficial gene expression.

In vivo gene editing represents a simplified treatment process without the need for cell extraction and harvesting required in ex vivo solutions. This means in vivo could prove more scalable and cost-effective. Early tests have shown encouraging results.

Editas successfully edited blood stem cells in monkeys with one dose and increased a key liver protein in mice, which could help treat diseases. The plan is to formally declare two in vivo development candidates from a group of target cell types or tissues under research this year and launch at least one in vivo human clinical trial by the second half of 2026.

The opportunity for Editas is to potentially deliver a first-to-market and best-in-class platform with applications for a wide range of genetic diseases.

Reasons for caution

Before getting too excited about Editas Medicine as an investment, it's important to recognize that the company has substantial work ahead and faces significant technical challenges, including confirming a precise in vivo delivery mechanism and addressing off-target DNA risks.

Research and development (R&D) partnerships with companies like Bristol Myers Squibb help validate the science and provide credibility to Editas Medicine's endeavors; yet, the in vivo gene editing approach has not been proven in humans. Reaching statistically significant efficacy and safety thresholds is far from certain.

Even in a best-case scenario, Editas could still be several years away from a clear timeline for bringing a new therapy to market. Meanwhile, companies like CRISPR Therapeutics, Beam Therapeutics, and Intellia Therapeutics are all exploring in vivo CRISPR technologies, underscoring the highly competitive field. It's unclear whether Editas has an edge.

More pressing for investors is reconciling Editas' weak fundamentals. In the first quarter, the company posted a net loss of $76.1 million, which included a $41 million restructuring charge as it abandoned its ex vivo program, pivoting exclusively to the in vivo strategy. This follows $390 million in negative net income between 2023 and 2024. The expectation is for recurring losses in the foreseeable future.

With $221 million in cash on the balance sheet, company management believes it has the liquidity to continue development until mid-2027. Nevertheless, additional funding will likely be necessary to advance into late-stage development, including measures dilutive to shareholders. Any setback in the R&D process or regulatory timeline could force a reset of expectations and send the stock price lower.

The big picture for investors

Balancing the pros and cons of investing in Editas Medicine, I believe the stock is simply too speculative to buy with conviction, as the risks outweigh the upside. The prudent approach is to avoid it, instead focusing on companies with higher-quality fundamentals, including steady growth and consistent profitability.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beam Therapeutics, CRISPR Therapeutics, and Intellia Therapeutics. The Motley Fool recommends Editas Medicine. The Motley Fool has a disclosure policy.