Here's Why Editas Medicine Jumped 32.6% Higher Today

By Maxx Chatsko Markets Fool.com

What happened

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Shares of CRISPR biopharma Editas Medicine (NASDAQ: EDIT) jumped nearly 33% higher today, after the U.S. Patent and Trademark Office (USPTO) announced that the Broad Institute would keep its claims to valuable patents on clustered regularly interspaced short palindromic repeats, or CRISPRs, which make up the foundation of the company's gene-editing technology platform. Conversely, shares of competitors Intellia Therapeutics (NASDAQ: NTLA) and CRISPR Theraepeutics (NASDAQ: CRSP) both fell 22% and 33%, respectively.

So what

While all three companies have licensed CRISPR patents from various institutions, those at the center of this dispute are considering foundational patents for the technology. That's because the case decided who would gain the rights to intellectual property governing the use of the innovative gene-editing technique in more complex organisms, including plants, livestock, and humans -- where the most valuable commercial applications reside.

Image source: Getty Images.

The patent dispute pitted the Broad Institute against the University of California and, more specifically, whose claims to have pioneered the technique allowing CRISPR to work in human cells were valid. Editas Medicine tied its fortunes and technology platform to patents held by the Broad Institute (the lead innovator on many of the patents, Feng Zheng, is a co-founder of the company), while Intellia Therapeutics and CRISPR Therapeutics built their technology platforms on patents developed by the University of California.

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It might be easy to tell which side came out victorious by looking at the movement of CRISPR stocks, but it's actually a little more complicated. That's because the USPTO decided that each party's claims were valid for their respective patents and that the claims didn't overlap. In other words, no patents were invalidated by the decision.

And that's precisely why this is being seen as a big win for the Broad Institute (and Editas Medicine), which was at risk of losing some of its precious intellectual property. For the company specifically, it means it won't have to renegotiate intellectual-property licenses, which could have cost millions of dollars upfront and potentially billions in future royalties.

Unfortunately, the outcome is a little messier for Intellia Therapeutics and CRISPR Therapeutics -- and just about anyone seeking to use the technology in commercial applications. While the University of California patents are valid, there's a bit of a question about whether the companies will need to work out additional licenses with the Broad Institute. Furthermore, it seems that any company seeking to use CRISPR in commercial applications may need to secure licenses from both the Broad Institute and the University of California, which is certain to hike up the costs of working with the technology and the eventual price of any future commercial products.

Now what

Investors are choosing to react first and dig through the details later. But make no mistake: This can still be considered a messy ending to the dispute over who owns the "biotechnology discovery of the 21st century," as MIT Technology Review once described CRISPR.

Editas Medicine is clearly the most insulated from any fallout from the USPTO decision. Meanwhile, any fallout from the USPTO's decision poses smaller risks to Intellia Therapeutics and CRISPR Therapeutics than stock movements in the immediate aftermath suggest. In the end, investors should be happy that the worst of the patent dispute -- and the legal uncertainty -- is finally behind all three companies. Now the most important deciding factor in each company's success will be more familiar to investors: the uncertainty of clinical trials.

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Maxx Chatsko has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.