As 2020 has demonstrated, the stock market can move in any direction in the short term. But as historical stock market data suggest, the stock market wields rock-solid wealth-building potential in the long run. That's why individual investors are best served by adopting a long-term mindset with a buy-and-hold strategy.
There are a number of ways to go about it. Most portfolios should own a collection of blue chip stocks, even if that simply relies on indexing, although buy-and-hold investing doesn't have to be boring. After all, investors that held onto today's blue-chip businesses before they were trendy have enjoyed awesome returns thanks to the power of compound interest.
With that in mind, investors might want to take a closer look at Dicerna Pharmaceuticals (DRNA +0.00%) and Fate Therapeutics (FATE +5.64%). The two development-stage biopharmas have much to prove, but these pharma stocks could appreciate considerably in the coming decades.
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Taking cell therapy to the next level
First-generation cell therapies were based on chimeric antigen receptor (CAR) T cells, or CAR-T. While the approach has plenty of room for improvement, CAR-T cells have several notable drawbacks. For instance, the cell type isn't ideal for treating solid tumor cancers. Additionally, harvesting immune cells from each individual patient is a cost- and labor-intensive process that delays treatment. This all suggests it's worth exploring other immune cells as the starting point for next-generation cell therapies and new production methods, at the very least to augment the capabilities of CAR-T.
Fate Therapeutics is all-in on that line of thinking. Most of the company's 13 unique pipeline programs are based on natural killer (NK) cells, which have inherent advantages compared to other types of cell therapies. NK cells can target solid tumor cancer cells, rally the rest of the immune system to reduce tumor burden, and be dosed multiple times. The latter feature creates many new treatment opportunities, such as driving longer durations of response or being used in combination with other cell therapies.
The development-stage business has also taken the "next-generation" label seriously. Rather than harvest immune cells from patients -- a long, complicated, expensive, and risky procedure -- the company is pursuing an off-the-shelf strategy. In other words, most of the pipeline candidates are grown from master cell lines, which allows each cell therapy to be genetically engineered with reproducible edits and to be produced in batches. Fate Therapeutics estimates its approach would save weeks during crucial treatment windows and drop the cost of treatment from $425,000 per dose to just $2,500 per dose. Better yet, the approach is cell-type agnostic, meaning it can be applied to NK cells and CAR-T cells.
Although the early stage pipeline lacks concrete data for investors to digest, there are a handful of significant partnerships that boost the company's credentials. Fate Therapeutics has a collaboration with Johnson & Johnson subsidiary Janssen that could be worth up to $3 billion in milestone payments, a collaboration with ONO Pharmaceutical that could be worth over $1.3 billion in milestone payments, and a partnership with Inscripta providing access to next-generation gene-editing tools.
Fate Therapeutics ended March with $204 million in cash, which is sufficient to get the business through several data readouts from early clinical trials. If the results suggest the cell therapy approach has merit, then the biopharma stock should earn a higher valuation. Given the ambitious volume of assets -- 13 unique pipeline programs is very large for a development-stage company -- no single failure should have a disastrous effect on the stock price. Investors with a long-term mindset should give this company a closer look.
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The "other" genetic medicine
Gene editing and gene therapies gobble up most of the attention when it comes to genetic medicines, but investors shouldn't forget about RNA interference (RNAi). The gene-silencing technique encountered some stumbles in the past two decades, but a few simple tweaks to how the therapeutic payload is delivered into cells appears to have resurrected the technology's intriguing potential.
Dicerna Pharmaceuticals is one of the leading investment opportunities in the space. On the one hand, the company hasn't commercialized a single pipeline asset and is relatively far behind RNAi peers Alnylam Pharmaceuticals and Arrowhead Pharmaceuticals. On the other hand, the company ended March with half its market cap in cash and partnerships with six of the world's leading pharmaceutical companies.
That includes an unusual collaboration with Alnylam Pharmaceuticals. The duo reached an agreement to co-develop competing drug candidates for alpha-1 liver disease, in which Dicerna Pharmaceuticals has the right to develop Alnylam's ALN-AAT02 and its own DCR-A1AT. The RNAi competitor-collaborators also agreed to share intellectual property for their pulmonary hypertension (PH) programs. Hefty royalties -- in both directions -- are the bounty for success.
That's not the only intriguing partnership in the pipeline. Dicerna Pharmaceuticals and Roche are developing an experimental treatment aimed at chronic hepatitis B (CHB) infections. The asset is likely being developed as a functional cure for the disease, which would follow in the footsteps of an RNAi combination therapy from peer Arrowhead Pharmaceuticals. A safe and effective functional cure for CHB could generate tens of billions of dollars in lifetime sales.
Despite the early stage nature of the pipeline, investors cannot overlook the potential of the RNAi medicines being developed by Dicerna Pharmaceuticals. The gene-silencing approach could carve out and maintain dominant market positions in various indications. Market shares might change when curative gene editing tools and gene therapies arrive, although that could take much longer than many investors expect due to several technical obstacles facing the hyped-up approaches. Investors looking for a contrarian pick in genetic medicine might want to give serious consideration to this biopharma stock.
