Over the past year, shares of Beam Therapeutics (BEAM -4.81%) have soared over 174% higher. Investors of all stripes want to know if this stock can keep climbing, or if it's already too late to ride the wave.
This biotech didn't make its market debut until last year, but it's already a major holding for ARK Invest. This is the firm founded and still run by Cathie Wood, one of the world's most famous investors. Before getting into the risks, let's look at reasons Wood can't seem to get enough of this stock.
Beam Therapeutics' base editing technique could be much safer
Beam Therapeutics is pioneering the use of a new base editing technique in the development of new gene therapies. This is a bit like using a pencil and eraser to make changes. More traditional methods of gene editing employed by the likes of CRISPR Therapeutics (CRSP -1.24%) can be compared to a pair of scissors. CRISPR-based gene editing seems mostly accurate, but small mistakes that can have big consequences are starting to pop up.
Allogene (ALLO -1.88%) stock recently tanked after the company's gene-editing technology was associated with chromosomal abnormalities. We can't be sure exactly what caused those dangerous abnormalities, but the FDA isn't taking chances. In October, the agency applied a clinical hold that effectively shuts down the development of Allogene's lead candidate.
It's too early to know for certain if it was DNA strand breaks employed by Allogene's ill-fated candidate, ALLO-501A, that led to the abnormalities. The important thing to know is that this probably won't happen to Beam Therapeutics. Beam's candidates adjust one base pair at a time without breaking anything. This means the company is far less likely to experience a major safety scare down the road.
John Maraganore climbed aboard
Beam Therapeutics' experimental treatments can't make big changes to DNA, but this isn't much of a limitation. Single base substitutions of the sort Beam Therapeutics can fix are the single most common form of disease-associated genetic mutations.
With so many avenues to explore, Cathie Wood isn't the only person excited by Beam's base editing technique. Longtime CEO of Alnylam, John Maraganore recently announced his departure from the rare disease drugmaker and subsequently joined the board of directors at Beam Therapeutics.
Alnylam pioneered the use of small interfering RNA to control the expression of troublesome proteins responsible for severe diseases. Alnylam's path was pockmarked with pitfalls that Beam Therapeutics will encounter soon enough, making Maraganore a perfect fit.
Ready for clinical trials
There's a lot we don't know about base editing in humans, but we're about to learn a thing or two. On Monday, Nov. 9, Beam Therapeutics told investors its lead candidate, BEAM-101 is ready for testing in humans.
The FDA recently approved the initial new drug application for BEAM-101 so we know animal studies didn't uncover any dangerous side effects. Now the company can begin a human proof-of-concept trial with the candidate as a potential new treatment for sickle cell disease.
Reasons to remain cautious
Initiating clinical trials is a long leap into the unknown for Beam Therapeutics. Ignoring the risks, the stock market has already pushed Beam's valuation up to a nosebleed-inducing height that assumes a great deal of success. Beam Therapeutics' market cap has already soared up to around $6.6 billion.
Investors need to remember this company employs a lot of talented staff with advanced science degrees but it doesn't have a reliable source of revenue yet. If initial results from BEAM-101 are anything less than a rousing success, investors who buy the stock at its inflated valuation could suffer swift and heavy losses.
An opportunity to develop heaps of useful new therapies probably makes Beam Therapeutics stock worth the risk now. Just be sure to make it a small part of a well-diversified portfolio.