Beam Therapeutics (BEAM -0.89%) is exactly the kind of innovative biotech business that maverick growth stock investor Cathie Wood craves. Her shares are worth $210.5 million, and they account for around 3% of Wood's Ark Innovation ETF (ARKK -4.58%). Most recently, between April 27 and May 8, Wood bought shares of Beam Therapeutics five times, and more purchases are probably on the way, given her penchant for adding to her position multiple times per month since early 2021.
So is Cathie Wood's emphatic and consistently reaffirmed stamp of approval enough of a signal that you should be buying this stock too? Not exactly. But, for the right investor, this company could still be a good purchase, so let's investigate the merits of a purchase to see if it could be a smart pick for you.
Why Cathie Wood likes the stock
Beam Therapeutics is a gene-editing biotech. That means it invests heavily in building out its platform, which contains a few gene editing technologies that it intends to use to treat cancers, hereditary diseases, and hematologic disorders. Its most advanced clinical program is in phase 1/2, and it's a gene therapy currently called BEAM-101 that's intended to treat sickle cell disease and beta-thalassemia by directly editing the patient's relevant genes. It thinks that its candidate could be curative, or near-curative, which would be great for patients.
But it'll be years before it gets approved for sale if it ever does. And given that clinical trials can often fail or fall short, it's clear that Cathie Wood is investing because the high risks inherent to drug development can make for huge returns if a candidate ever makes it to the market.
Still, Beam's promising platform and early clinical work are enough to prompt powerful players like Pfizer to forge collaborations, so Wood isn't the only one willing to bet on its success. Under the terms of the deal, it could earn $1 billion in milestone payments. That'd be a welcome relief for the company's finances, as it had only $24.2 million in revenue in the first quarter of 2023, all of which came from its other collaborations.
Certain risks are unlikely to fade
There are a few big issues with Beam that investors need to appreciate before following Cathie Wood's trades and building a position.
Right now, Beam has about $250 million in cash and equivalents. For a biotech with one or two early-stage clinical programs, that would normally be enough to fund at least a couple of years of development, though it probably wouldn't be enough cash to move a drug all the way through clinical trials and get it approved for sale. But in Beam's case, its trailing-12-month (TTM) total expenses are $400 million, and its TTM cash burn was only $26.4 million.
To cover the gap between its high expenses and its low level of cash burn, the company could either take out fresh debt or issue new stock. It has no long-term debt, which means that it's issuing a ridiculous amount of new stock. In 2021, it raised $757.4 million from issuing new shares, and in the last 12 months, it raised an additional $108.2 million. Its market cap is only $2.5 billion; issuing all those new shares has severely diluted the value held by investors, and the trend looks fated to continue, which is a significant risk. Management claims that income from the biotech's collaborations will be enough for its cash to last until at least 2025, but that plan hasn't worked recently, and it's unclear if it will work moving forward.
What's more, there is another big problem: Its most advanced pipeline program, BEAM-101, is years away from commercialization, assuming it ever happens at all. Competitors like CRISPR Therapeutics and Bluebird Bio have candidates that treat the same conditions, and they're far more advanced than Beam's program. In fact, CRISPR's program is awaiting regulatory approval right now, and Bluebird's has been on the market for a while already.
If Beam makes it to the market with BEAM-101, it'll be very much a latecomer to a crowded party, and that's before even considering whether other earlier-stage competitors like Editas Medicine succeed with their bids to commercialize gene therapies for the same indications. It's hard to see how there would be much money left to be made with so many competitors with head starts. Therefore, the trade-off between risks and rewards with Beam Therapeutics stock simply isn't that appealing at the moment, regardless of what Cathie Wood is doing. Even if you're usually comfortable with the level of risk associated with biotech stocks, there are better options out there.
