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How Risky Are Genetics Stocks?

By Matthew Frankel, CFP® and Brian Orelli, PhD - Updated Jun 23, 2021 at 8:12AM

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Here's an overview for investors about this exciting but unpredictable industry.

There are massive opportunities in the gene-editing space, but there are also a number of risks investors should know before jumping in. In this Motley Fool Live video clip, recorded on May 24, The Motley Fool's Chief Growth Officer Anand Chokkavelu, along with Healthcare Bureau Chief Corinne Cardina and contributor Brian Orelli, PhD, discuss the risks in this exciting industry that investors should keep in mind. 

Anand Chokkavelu: How do you both think about risk in this industry, especially since so many things are binary?

Corinne Cardina: I can start or Brian, you want to?

Brian Orelli: Go ahead.

Cardina: Okay. With biotechs, it's a ramp of de-risking. As you go along the process beginning with the research and development to preclinical, which is testing in animals, to early stage which is phase one and two, to late stage which is phase three, to regulatory approval, to commercialization, so that's your timeline. The risk decreases as you go. That's pretty logical. Plenty of candidates fail at every single step of the way. There are certain steps that are a little bit easier to clear, you can look at statistics on percent of candidates that make it through phase one, two, three, approval, that kind of thing. You're never without risk. Even once you get to the market, you're never going to be 100% free of risk. There is the risk that you launched something onto the market and then you have to recall it for reasons that you didn't anticipate in the trial. You're never free of risk. You're also at risk of another company coming and disrupting your treatment, should they be superior. It's a ramp of de-risking but you're never totally safe. Once you de-risk your candidate or drug in one particular indication, it can have implications for your broader pipeline or your underlying technology or your company's strategy. You can have certain proofs of concept that make your broader pipeline and your stock less risky. That's something to pay attention to and definitely has implications for the stock price as investors say, "Wow, this is really working," or maybe in the opposite way it can bite you. But there are other elements besides pipeline progress that contributes to the de-risking of a biotech. We've talked plenty about commercial partners, but sharing the risk with a big pharma company or a biotech that has experience, that isn't going to contribute to de-risking. You also want to keep an eye on any possible disruptors that have implications on gene editing. Gene editing with CRISPR is definitely seen as cutting-edge and potentially revolutionary, but you can't ever discount technology continuing to evolve and the competitor coming out with something even more cutting-edge and could disrupt you as the disruptor. In terms of risk, you're never free of it. As you go along, you are less risky. We'll talk a little bit more about what that means for investors, but I'll let Brian add on since he obviously has a lot of biotech knowledge as well.

Orelli: Just to follow up on a couple of things you said. I think the technology is really the biggest risk here especially if we're trying to do in vivo, in the body, gene editing, we haven't seen that yet. We have seen data that shows that you can do it in a test tube, in a manufacturing plant, to cells and then put them back into the patient. We know it works there fairly well, but we haven't quite gotten to the point where in vivo is definitely working. I think that for editors, once they can show that one of their eye indications works, that will de-risk the stocks substantially and you can assume that they'll be able to treat other eye diseases just as well and so I think that that's one thing. The other big risk here that we haven't talked about is in getting these treatments paid for. Because they're one-time treatments, they're going to have to be really large payments to justify the treatment and so that's going to be really difficult to try to get insurers to pay for it because people move around on insurance a lot. One insurer is going to pay for it and then other insurers are going to benefit from that payment and so I think we're still at it. We've done a little bit of that in gene therapy, but I think that's still a big risk for these companies.

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