The healthcare industry has long been touted as recession-proof, and for good reason: People get sick, regardless of what the economy might be doing around them.
Dig deeper into the industry, though, and that truth becomes a bit more fluid. Providers – like doctors and hospitals – are more likely to feel some of the economic pinch, while other sectors, such as the pharmarmaceutical industry, have historically done well regardless of the market's swings.
And then there are biotechs. These companies make medicines that are derived from or made with material from living organisms. Although this sector has much more volatility to it than the big established hospitals and pharmaceutical companies, it can be extremely resilient. The right company can add some solid growth opportunities to your portfolio.
The key is to find companies that are positioned to withstand the challenges a recession can pose. Here's why I think Caribou Biosciences (CRBU -2.34%) meets that criteria.
Plenty of potential
Let's start with the company's biggest selling point: It treats cancer. Caribou uses allogeneic cell therapies – a combination of CRISPR gene-editing technology and CAR-T cell therapies – to fight both solid tumors and hematologic malignancies (cancers that originate in blood-forming tissues, such as bone marrow). This innovative, off-the-shelf approach uses edited cells from healthy donors rather than removing, editing and reinserting the patient's own cells. This in turn, means that the therapies can be created in large batches and with multiple edits.
Its most developed product, CB-010, is in Phase 1 clinical trials and is showing amazing results. CB-010 targets relapsed and refractory B cell non-Hodgkin lymphoma with three edits, including a "knockout" inhibitor that increases autoimmunity responses. Six out of six patients showed a 100% complete response (CR) rate -- no signs of cancer -- after just a single dose of CB-010. At six months after the single dose, 50% of the 6 patients continued to show CR, and the first patient treated in the company's inaugural in-human trial, the ANTLER study, remained in CR at their 12-month evaluation.
The company has a handful of promising projects in its pipeline too. CB-011, for example, targets relapsed or refractory multiple myeloma (MM) by making four edits and inserting a humanized anti-BCMA CAR into the T cell genome. It is the first allogeneic CAR-T cell therapy that is "immune-cloaked," bypassing the natural immune system to help prevent rejection.
Building a strong foundation
On the financial side, Caribou has plenty of cash, cash equivalents and market securities, reporting just over $366 million at the end of the second quarter of 2022. That's down a bit from the $390.8 million reported at the end of the first quarter, but this drop is mostly due to an increase in expenses.
In the second quarter, research and development (R&D) expenses were up 83% year-over-year (YOY), and administrative expenses increased 96% YOY within the same period, bringing total quarterly expenses to $32.6 million. The increase in R&D is actually a good thing, though: It means that the company is growing its pipeline, something we want to see in a biotech. The jump in administrative expenses is due primarily to some strategic additions to the company's board and executive team – another promising point.
Caribou also has a steady revenue stream from licensing and collaboration agreements, up considerably to $4.2 million for the quarter compared to $1.5 million for the same period last year. That's something you don't frequently see in this industry. All of this means that Caribou has more than enough to cover its operations for the next 12 months and beyond, an important factor when money is tight.
The company did report a net loss of $26.7 million in the second quarter, a 41% increase over the loss reported the quarter before. But this isn't unusual either. Small start-ups – particularly biotechs -- don't typically generate much of a profit, because they funnel most money into research and testing. This research and testing can be painstakingly slow; in fact, the average timeframe to take a new drug to market is eight years. That's a lot of time and research without an actual product to sell.
Image source: Getty Images.
Leadership to weather the storm
As leadership goes, Caribou has a stellar executive team. Co-founders Rachel Haurwitz, Martin Jinek and Nobel Prize laureate Jennifer Doudna are still actively involved; Haurwitz serves as president and CEO, and both Doudna and Jinek sit on Caribou's scientific board. The company also made some strategic additions to this team (contributing to the heightened administrative expenses mentioned above), bringing on a new Chief Medical Officer among other high-level hires.
It's true that biotech stocks have taken a beating lately, but remember: We're adding this company for its potential as much as its resilience, so don't sweat the dip. The biotech industry has historically done well during and after a recession, and this downturn we're seeing should eventually correct course, especially as new data on specific treatments becomes available.
In Caribou's case, that could be fairly soon. The company expects to have additional data for CB-010 by year-end, and plans to submit IND applications to begin Phase 1 trials for CB-011 in 2022, and for another promising cell therapy, CB-012, in 2023. Buying Caribou Biosciences now could set you up for some substantial growth down the road.
