Intellia Therapeutics: A Stock Trading at a Massive Discount to the Problems It Seeks to Cure
Before I get to the report itself, I want to give a little bit of background. I made this report in order to compete in the YIS Stock Pitch Competition, a global competition in which high schoolers pitch a stock. With this report, I was able to be a part of the Top 20 teams, as well as get the opportunity to meet many other young investors like myself. Here’s the report that I created. Expect more research on other stocks to come in the near future.
Intellia Therapeutics
Founded in May 2014, Intellia Therapeutics is a leading biotechnology company focused on developing and commercializing gene editing treatments. The company is working to develop CRISPR/Cas9-based gene editing treatments for the prevention and treatment of serious diseases, with a focus on rare diseases, cancer, and infectious diseases. Intellia is advancing its clinical programs in transthyretin amyloidosis and hereditary angioedema, with multiple preclinical programs in additional indications. The company is also developing a portfolio of therapeutic ex vivo (outside of the body) and in vivo (inside of the body) applications of its gene editing technology, leveraging its novel LNP delivery platform. Intellia provides a pure-play exposure to novel gene-editing treatments at an exciting discount.
Investment Thesis
Markets are undervaluing the potential of gene-editing companies, due to recent struggles in the broader biotech market, as well as binary results in approval. However, Intellia is the best-positioned gene-editing company given its strong pipeline and potential revenue from its 2 lead candidates, NTLA-2001 and NTLA-2002. This creates 2 unique investment theses for Intellia
- Intellia continues to develop and eventually commercialize its two lead candidates, thereby, creating alpha.
- Gene editing begins to gain traction from the industry and interest from Big Pharma, potentially creating an acquisition opportunity for Intellia. The price to acquire Intellia would come at a premium to the current price, thus creating alpha.
Business Strategy and Outlook
Intellia is a gene-editing company focused on the development of numerous CRISPR/Cas9-based therapeutics. Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR)/Cas9 works by having pieces of DNA sequences (CRISPR) guide an enzyme meant to cut/edit DNA (Cas9) in order to alter, edit, or repair genes. Intellia utilizes this gene editing approach alongside a lipid nanoparticle delivery system, similar to the MRNA vaccine, in order to treat rare diseases caused by genetic mutations. Intellia’s pipeline utilizing this revolutionary gene-editing tool can potentially create blockbuster treatments with limited competitive treatments.
Intellia’s 2 lead candidates are NTLA-2001 for treating transthyretin amyloidosis and NTLA-2002 for treating hereditary angioedema. NTLA-2001 is being co-developed with Regeneron, where Intellia is the clinical and commercial lead. In this partnership, Intellia will retain 75% of the economic profits of NTLA-2001, alongside the expertise and financial support of Regeneron. NTLA-2002 is wholly owned by Intellia. The rest of the pipeline is in the preclinical stage of development and is listed below. (Figure 1)
However, Intellia currently has no approved drugs and its pipeline is largely composed of early-stage treatments. This presents a risk as Intellia will have no way to make consistent revenue and will be reliant on dilution and current cash holdings until they are able to market one of their products.
Economic Moat
Intellia’s solid pipeline has the potential to build blockbusters in rare diseases. They are currently focused on developing and commercializing novel treatments for these rare diseases while possessing a mostly early-stage pipeline. I believe that the cash and cash equivalents they currently have ($1,335 million including marketable securities) will be enough to allow them to commercialize and bring several of its pipeline treatments to market. However, the high level of uncertainty in regulatory approval for the early-stage portfolio does present a risk, as it could face substantial value destruction for the early-stage company.
While Intellia does not have a stable revenue stream, I believe that we should closely watch the development of its 2 lead candidates for signs of Intellia’s competitive advantages. Intellia has numerous pipeline candidates for rare diseases with limited competition, potentially creating moat-worthy businesses through strong pricing power. I will go over their 2 lead candidates.
NTLA-2001 Potential Economic Moat
One of Intellia’s lead candidates, NTLA-2001, is an in vivo CRISPR treatment for transthyretin amyloidosis (ATTR). NTLA-2001 is currently in Phase I/II and will initiate its pivotal Phase III study by the year-end of 2023. They also plan to submit their Investigational New Drug (IND) application by mid-2023. NTLA-2001 is being co-developed and commercialized alongside Regeneron. Regeneron shares 25% of gross profits, with Intellia keeping the rest of the 75%. Intellia will be able to utilize the expertise and financial aid of Regeneron to help develop NTLA-2001.
ATTR is a rare, progressive disease characterized by the abnormal accumulation of amyloid fibrils, as a result of misfolded transthyretin (TTR) protein. There are 2 main types of ATTR, wild-type ATTR (wtATTR) and the rarer hereditary ATTR (hATTR). The wtATTR is typically caused by cardiomyopathy and heart failure, while the hATTR can be triggered by more than 100 different mutations in the TTR gene. Approximately 50,000 people are thought to have hATTR and another 200,000 to 500,000 with wtATTR.
Current therapeutic treatments approved in the US are Pfizer’s Vyndaqel and Vyndamax, as well as Alnylam’s Onpattro and Amvuttra. All of these treatments rely on reducing ongoing amyloid formation by knocking down the TTR protein through gene silencing. However, this requires long-term chronic treatment for this disease.
NTLA-2001 is meant to edit the TTR gene, ultimately leading to decreased production of TTR, and only requiring a single dose. NTLA-2001 would edit out the TTR gene, which because of its redundant function, means that it would have limited physiological effects. If it were to be approved, NTLA-2001 would be a transformative treatment for ATTR and a potential blockbuster drug for Intellia.
In pre-human trials, the single-dose treatment led to a durable reduction in mean serum TTR by 95% or greater, which would provide a greater TTR knockdown than current therapies while also requiring only one dose. In its year-long analysis in nonhuman primates, NTLA-2001 was shown to be durable, being able to sustain low TTR concentration for a year.
In NTLA-2001 first-in-human trials, 15 patients were given low dosages (0.1 mg/kg, 0.3 mg/kg, 0.7 mg/kg, 1.0 mg/kg) and were tested for change in serum TTR concentration for pharmacodynamic effects. Patients in the 0.1 mg/kg group saw a mean reduction in serum TTR levels of 52%, the 0.3 mg/kg saw a greater mean reduction of 87%, the 0.7 mg/kg saw a mean reduction of 86%, and the 1.0 mg/kg saw the greatest mean reduction of 93%. The results from the trial are still ongoing in order to determine the durability of NTLA-2001, which is showing promising results. The conclusion we can reach from this trial was that NTLA-2001 led to a reduction in serum TTR with mild adverse events, with a sustainable knockdown.
Forecasting revenue for NTLA-2001 is relatively simple. I forecasted revenue for NTLA-2001 by forecasting yearly patients and multiplying that by the price of NTLA-2001. Intellia plans to initiate a pivotal global trial for NTLA-2001, which led me to forecast that it would reach the market by 2027. I forecasted that the number of patients taking NTLA-2001 would be 500 in 2027, 750 in 2028, 1,000 from 2029–2030, and then a 10% decrease in annual patients up until 2040. This would mean that the cumulative number of patients for NTLA-2001 till 2040 is 9,763, lower than the current number for Pfizer’s Vyndaqel. The reason this is the case is that NTLA-2001 should permanently treat ATTR. This is also the reason why NTLA-2001 would have a 10% decrease because the patient pool for ATTR should decrease. NTLA-2001 would be a transformative treatment if approved, being the only single-dose treatment for ATTR. It would create a strong moat through a strong pricing power and Intellia’s 75% share of profits. For the base case, I conservatively priced NTLA-2001 at $2.5 million. We will also have to take Regeneron’s 25% share into consideration (which is not done in Figure 4)
NTLA-2002 Potential Economic Moat
Intellia’s second lead candidate is NTLA-2002, an in vivo CRISPR treatment for Hereditary Angioedema. NTLA-2002 is currently in phase I/II and will initiate the phase II portion by the first half of 2023. On March 2nd, NTLA-2002 was cleared for their IND, allowing them to include the United States in the phase II portion of their trial. Unlike NTLA-2001, NTLA-2002 is wholly owned by Intellia, which is great for Intellia.
Hereditary angioedema (HAE) is a rare, genetic disorder that causes recurrent, severe attacks of swelling of the skin and mucous membranes, with about 11,000–21,500 patients. It is caused by a deficiency or malfunction of a protein called a C1 esterase inhibitor (C1-INH). During an attack, swelling can occur in various parts of the body, including the hands, feet, face, abdomen, larynx, and tongue. Symptoms can range from mild to severe and can be very dangerous if the swelling affects the larynx and airways, making it difficult to breathe. On average, patients tend to have attacks every 7–14 days. All current treatments work by chronic treatments meant to inhibit kallikrein, a clinically proven strategy for preventative treatment of HAE attacks. NTLA-2002 would be the only single-dose preventative treatment for HAE.
NTLA-2002 is meant to edit the kallikrein B1 (KLKB1) gene, ultimately leading to a decrease in the production of KLKB1 after just a single dosage. NTLA-2002 uses CRISPR that targets the human KLKB1 gene and is designed to inactivate it. It uses an established LNP delivery system, the same as NTLA-2001. NTLA-2002 essentially deactivates the KLKB1 gene, allowing for reducing kallikrein and preventing attacks in people living with HAE.
In the NTLA-2002 ongoing Phase I/II trial, 10 patients were given single doses of NTLA-2002 of 25 mg, 50 mg, and 75 and were observed for plasma kallikrein levels and HAE attack rates. Overall, mean plasma kallikrein had a reduction of a 64% at week 32 for 25 mg group, 92% at week 16 for 75 mg group, and 81% at day 22 for 50 mg group. There was also a notable HAE reduction, with a mean HAE reduction of 91% from week 1–16 and an 89% reduction from week 5 -16 for the 25 mg group. The 75 mg group also had a similar reduction, with a mean HAE reduction of 78% from week 1–16 and an 89% reduction from week 5–16. Duration of the ongoing attack-free interval was 5.5–10.6 months in the 25 mg group and 2.3–4.2 months in the 75 mg group, with none of the patients having an attack since being treated.
Forecasting NTLA-2002 can be done in a very similar way. I expect NTLA-2002 to reach the market by 2028. I forecasted 175 patients taking it in 2028, 250 patients from 2029–2031, and a similar 10% decrease in patients for the same reason as NTLA-2001. Like NTLA-2001 with ATTR, NTLA-2002 would be a transformative treatment for HAE, as well as the only single-dose treatment for HAE. This would create a similar moat through strong pricing power. For the base case, I forecasted a greater annual price being $3m, due to it being a single-dose treatment for a relatively rarer drug. Using this, we get the forecasted revenue for NTLA-2002. (Figure 7)
Pipelines Potential Economic Moat
Intellia has numerous other CRISPR treatments in its pipeline. Other in vivo candidates in their pipeline include NTLA-3001 and NTLA-2003, both treatments for Alpha-1 Antitrypsin Deficiency (AATD), as well as an ex vivo NTLA-6001, a CAR-T therapy targeting CD30 in lymphomas. The pipeline also includes programs in Hemophilia A and B in partnership with Regeneron, a wholly-owned Acute Myeloid Leukemia program, an undisclosed program with Novartis, and a 4-way research program partnership with AvenCell, Kyverna, and ONK. The strong collaborations Intellia has with its partners lend to the strength of its pipeline. A lack of clinical data and early-phase status leads me to exclude the potential value of each of the treatments. However, it strengthens Intellia’s solid pipeline, adding value as a possible acquisition target to Big Pharma.
Management Team and ESG Considerations
Intellia’s Management Team is prized with wealth and knowledge. Their CEO is John Leonard, an MD who prior to joining Intellia in 2019, served at Abbott Laboratories and the succumbent AbbVie. At Abbott, Leonard served as the Vice President of Global Clinical Oncology Development, where he played a significant role in the development of Humira (adalimumab), a blockbuster drug currently generating revenue of $21.237b TTM. After the AbbVie spinoff, John Leonard became CMO, overseeing the development of 2 other blockbuster drugs, Imbruvica (ibrutinib) and Venclexta (venetoclax), each generating revenue of $5.408b and $1.820b TTM. Given John Leonard’s vast experience in the biopharma space, including his instrumental work in the approval of 3 blockbuster drugs, Intellia is being led into the future in trustworthy hands.
Intellia Therapeutics is committed to long-term value creation centered around ESG principles. Their core values are “ONE, EXPLORE, DISRUPT, DELIVER”, focused on the idea of changing the future for the better. They are also committed to patient advocacy, working with organizations to hear their opinions. They also are committed to equitable employee treatment, including 50% of their senior and executive team being female. Intellia remains committed to its employees through numerous programs, as well as its community through community volunteering.
Capital Allocation
Intellia Therapeutics has not and will not make a profit for the foreseeable future until either NTLA-2001 or NTLA-2002 are commercialized. Their current accumulated deficit is $1,177 million. However, their Paid-In Capital makes up for their accumulated deficit, which is $2,420 million. They currently have no debt on their balance sheet and have $1,335 million in cash and cash equivalents (including marketable securities), which will provide some leeway until their treatment is approved.
I believe that Intellia’s capital allocation is standard for a biotech company. Intellia heavily invests in R&D, focusing on developing and advancing its pipeline. They recently acquired Rewrite Therapeutics, another gene editing company focused on base editing and gene writing, only adding to their strong pipeline. The validation of the company’s gene editing technology through FDA approval will be key. Finally, Intellia does not pay a dividend, which is appropriate for a pre-revenue company.
Intellia has recently discontinued 3 of its programs. This includes an ex vivo treatment, OTQ923/HIX763 for sickle cell disease, in partnership with Novartis. Novartis, which partnered with Intellia in order to develop OTQ923, discontinued the development of the treatment in Q4. However, this shouldn’t impact Intellia, as they had little involvement in the program, and also allows them to focus on the higher potential in vivo treatments in their pipeline. It is also key to note that Novartis has not ended the partnership, still having a disclosed program. Either way, Intellia was able to utilize the partnership to gain access to LNP technology that is vital for in vivo treatments.
Fair Value
While the future of Intellia appears ripe with success, we need to determine a fair valuation of Intellia to determine whether or not it is undervalued. To reach a fair valuation of Intellia, I have employed a Discounted Earnings Model (Appendix, Figure 10, Figure 11, Figure 12). I have not used a comparative valuation or a multiple valuation as Intellia is idiosyncratic (like the rest of biotech) and is pre-revenue.
I assigned Intellia a fair value of $78.74 per share and currently view the stock as undervalued. While the company has no approved treatments, a solid pipeline with strong pricing power in those treatments provides investors with a pure-play exposure to novel gene editing treatments.
Key Assumptions
Given that Intellia plans on initiating a global pivotal trial by the year-end of 2023 for NTLA-2001, I assumed that the trial would begin by 2024, that it would get approval in 2026, and would begin commercializing by 2027. I also assumed that NTLA-2002 would begin commercializing the year after. I estimated a 95% gross margin, an operating expense of $400m, a return on capital of 2%, and a tax rate of 20%, 2 years after becoming profitable (2029).
I have given a cost of equity of 10%. This is with a risk-free rate of 3% and an equity-risk premium of 7%. This is higher than the typical biotech company due to uncertainty in outcomes. I have also given a terminal growth rate of -5% after 2040, in order to be conservative.
Investment Risks
Our valuation of Intellia Therapeutics is a base case valuation for its intrinsic value. However, they do include some investment risks.
- Failure to achieve regulatory approval and commercialization. This would essentially mean that Intellia is worth $0. However, based on the previous trials, I see this outcome to be unlikely.
- Negative perception of gene editing treatments. This could negatively impact approval as well as market acceptance among physicians, patients, and hospitals. However, I think the one-time treatments will be favorable to current chronic treatments and should remain to have a positive perception.
- Dilution of shares to raise capital. While this isn’t entirely negative, a massive dilution could result in the shareholder not getting the maximum alpha. However, this will provide Intellia with more cash to develop its pipeline, which is valuable.
However, I do believe that the sheer upside of Intellia outweighs the negative risks regarding its value. The base case valuation ignores the rest of the pipeline, as well as takes a conservative mark for the number of patients and pricing for NTLA-2001 and NTLA-2002. As a result, I believe its treatments make it a promising acquisition target for Big Pharma. Even if it isn’t acquired, its intrinsic value more than makes up for its upside.
Estimated Value of Intellia Therapeutics
Current Market Cap of Intellia Therapeutics: $3.270b
Current Stock Price: $37.15
Fair Value Estimate of Intellia Therapeutics: $6,428b
Fair Value Estimate: $78.74 (+111.95%)
Intellia Therapeutics is trading at a massive discount to its potential
BUY
Possible Hedges:
Long ALNY. If NTLA-2001 is not approved, ALNY’s lead product, Amvuttra, a chronic treatment for ATTR, would benefit, therefore increasing the value of ALNY
Possible Alternative Investments:
Long REGN. I estimate about 5% of REGN’s current value is based on the results of NTLA-2001. The success of NTLA-2001 would benefit REGN.
Short ALNY. The approval of NTLA-2001 would harm revenue from Amvuttra, lowering the value of the stock.
APPENDIX
Base-Case Discounted Earnings Model for Intellia Therapeutics
