On February 15, 2017, Editas Medicine hit the news headlines when the company apparently posted over 30% gain, trading almost $25 a share after opening at $18.71 (Kilgore, 2017; Li et al., 2016). This was the highest gain ever in a single day since the company went public over twelve months ago . T h is development came after the United States Patent and Trademark Office (USPTO) ruled in favor of Editas Medicine . As a result, the company retained the right to keep its claims to valuable patents on the company’s gene-editing technology platform, Clustered Regularly Interspaced Short Palindrome Repeats (CRISPRs) (Li et al., 2016; Parrington, 2016 ; Parr, 2007) . According to Parr (2007), the patent dispute had pitted the Broad Institute of Massachusetts Institute of Technology and Harvard University against the University of California (Kilgore, 2017). T he lat t er claim ed to have initiated and championed the technique which established the efficacy of CRISPR in human cells. Editas Medicine, on the other hand, argued that its technology platform had been built on the patents initially granted to the Broad Institute under its founder and innovator, Feng Zheng . Intellia and CRISPR Therapeutics developed similar technology platforms but on the basis of patents from the University of California. Therefore, w hile Editas Medicine posted th is impressive performance, the stock shares of its close competitors, CRISPR Therapeutics and Intellia Therapeutics tumbled by 33% and 22% respectively. Against this backdrop, this paper will explore the financial standing of Editas Medicine after winning the patent battle on CRISPR gene editing. It will delve into showing the impact of the ruling on the firm’s long-term revenue. Conversely, it will examine the extent and implications of the loss on Intellia . In a bid to do this, the financial statements of the companies will be scrutinized . Overall, the paper is aimed at articulating what is happening to the real world in relation to financial accounting. It will also fill the existing gap between theory and practice.
An analysis of the accounting and bank statements of Editas M edicine reveal several interesting reasons behind the improvement posted by the company. For instance, i mmediately after the announcement was made , Allergan, an established and world pharmaceutical firm , announced a strategic research-and-development collaboration with Editas Medicine (Editas, n.d) . Allergen’s interests range from CRISPR and the development of novel treatments for eye infections and other diseases . The partnership will thus see grant Allergan exclusive license to access over five gene-editing platforms and ocular programs. In return, Editas Medicine is expected to receive a $ 90 million upfront payment alongside other royalty and milestone payments (Editas, n.d) . Hence, the financial projections of the company for the fiscal year ending June 2017 indicates that the company over $90 million which excludes the operational profits as compared to the $23 the company made in the last financial year ( Editas, n.d.) . An overview of the company’s statements indicates that the $90 million upfront payment will serve as a significant boost to the company ’s balance sheet and p ro f orma s tatement which showed a total of $185 million in cash as at 31st December 2016 (Editas, n.d). A large proportion of the anticipated profits is expected to go towards strengthening the various gene-editing programs . It will also be geared towards the expansion of the existing programs owing to the expected competition. While collaboration with Allergan is the only formalized partnership, Editas is projected to reap more profits over time following the interest of other companies .
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Conversely, t he ruling on licensed CRISPR patents and licenses weighed down on Intellia Therapeutics, a company that has been practicing gene editing on platforms developed by The University of California. For example , hours after the ruling was made public, the stock prices plunged by 22% before closing at 9%. Similarly, since the board’s decision , the company’s stock prices have been plummeting, and have never recovered . I n the year 2016, Intellia ’s balance sheet showed a total of $165 million. The firm also projected its total revenue to be around $205 by the end of the year 2017 (Intellia Therapeutics Inc , 2016 ) . However, going by the current trends in the stock market, it is highly likely that the projection will be not be achieved . The company’s net investment at the end of 2017 was also expected to reach $45 million. The projections were made bas ed on the current price of Intellia Therapeutics shares on the stock market as well as the fact that most gene editing programs at the company were in their initial stages . Thus, these prospects would be a significant boost to the generation of revenue upon completion. In fact, analysts explain that the company Intellia Therapeutics is bound to post a negative growth index in revenue should the effects of the verdict go beyond the current state. Most investors tend to foresee a situation where even the limited access rights might be revoked and possibly send the company into receivership. Moreover , most traders are unwilling to trade with the company’s shares. As a result, only a small number of daring and experienced investors are willing to buy Intellia Therapeutics shares. According to the company’s financial statements, the expected revenue growth at the end of the first quarter of 2017 stands at -0.34% while the annual estimated revenue growth is currently at -1.18%. The se figures are bound to change with the shifts in the stock market .
An a nalysis of the first quarter performance of Editas Medicine reveals that the company posted a net revenue of USD 0.90 million and net earnings of USD -39.38 million. These figures do not include the expected financial boost from the strategic partnerships and collaborations. Similarly, the revenue for the last quarter stood at $0.96 million against a revenue growth of 13.6% and a net margin of -4384.86%. The return on equity stands at -885.63 while the return on assets is at -66.83%. Editas medicine is therefore poised for great success not only in the genomics and gene editing sector but also a dominant player in the stock markets. The move by the USPTO seems to have initiated a subsequent investor power and interest in the company. The performance of the firm for the first quarter of 2017 has been estimated to surpass that of the last two quarters of 2016 combined (Editas, n.d.). This is due to reduced competition and increased stability in share prices .
On the other hand, an analysis of Intellia per share data and ratio margins reveal negative trends. For instance, at the end of the current fiscal year, Intellia Therapeutics projects the earning per share of -0.34 and a tangible book value of about -0.59. The long terms effects of the CRISPR ruling a r e also bound to weight down on the company's net profitability. The long-term liabilities of the company stand at 1.6 against an operating profit of -0.37. With regard to the ratios and margins, Intellia Therapeutics estimates its operating margin at -221.86, the pretax margin at 221.86 and the net margin at -205.11. The c apital expenditure is further valued at -605,000 against a free cash flow of -8.21. In essence, Intellia Therapeutics might fail to recover and attain its former financial status at the expense of Editas Medicine ( Intellia Therapeutics Inc , 2016) . It might, therefore, call for a significant investment, possibly through diversification of Intellia Therapeutics ’ business so as to revive the value of its shares in the stock market .
In conclusion, the ruling by the USPTO in favor of Editas Medicine catapulted the company to a new level of financial performance. Th plummeting of the s tock prices of its close competitors leaves Edit a s as the dominant and most preferred player in the sector. Similarly, the exclusive rights have not only attracted investors but also numerous prospective partners and collaborator . This will further boost the firm’s revenue. Moreover, Editas Medicine is bound to enjoy more financial success in the future at the expense of potential financial crisis at Intellia Therapeutics.
References
Editas (n.d). 2017 press releases. Editasmedicine.com. Retrieved from http://ir.editasmedicine.com/phoenix.zhtml?c=254265&p=irol-news&nyo=0
Editas (n.d.). SEC filings. Editasmedicine.com. Retrieved from http://ir.editasmedicine.com/phoenix.zhtml?c=254265&p=irol-sec
Intellia Therapeutics Inc (2016, Aug 4). Intellia Therapeutics reports financial results for second quarter 2016. Globenewswire.com. Retrieved from https://globenewswire.com/news-release/2016/08/04/861903/0/en/Intellia-Therapeutics-Reports-Financial-Results-for-Second-Quarter-2016.html
Kilgore, T. (2017, Feb 15). Editas Medicine's stock soars after favorable ruling in CRISPR patent dispute. Marketwatch.com. Retrieved from http://www.marketwatch.com/story/editas-medicines-stock-soars-after-favorable-ruling-in-crispr-patent-dispute-2017-02-15
Li, H., Nykänen, P., Suomi, R., Wickramasinghe, N., Widén, G., & Zhan, M. (Eds.). (2016). Building Sustainable Health Ecosystems: 6th International Conference on Well-Being in the Information Society, WIS 2016, Tampere, Finland, September 16-18, 2016, Proceedings (Vol. 636). Springer.
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