Biotech stocks, especially those that don't have a medicine on the market yet, tend to be among the riskiest investments available. Even under the best of conditions, clinical trials can fail to pan out in the way that management had hoped, and regulators can sometimes pass down unexpectedly unfavorable rulings.
The key is to invest in only the highest-quality businesses as second-rate players face even gloomier odds. So let's evaluate two early-stage biotech companies, one of which could be a good fit for the right niche in your portfolio, and one that you should probably avoid due to its even-higher-than-normal risk.
A biotech to consider: Beam Therapeutics
Beam Therapeutics (BEAM -1.02%) is a Cathie Wood favorite, and a cutting-edge biotech stock in the early chapters of its story.
Beam's pipeline includes two noteworthy clinical-stage programs as well as a pair of interesting pre-clinical programs that are likely to move into the clinical phase in the next year or so. Its most advanced candidate, BEAM-101, is a cell therapy for treating and potentially curing both sickle cell disease (SCD) and beta thalassemia, and it's in phase 1/2 trials at the moment. Its BEAM-201 program is also in phase 1/2 trials as a treatment for acute myeloid leukemia (AML).
BEAM-201 could be a winner because of its technical specs. It's a cell therapy that includes four additional genetic features designed to make it safer to administer, longer lasting, and significantly easier to manufacture. While other biotechs like Caribou Biosciences are pursuing similarly sophisticated cell therapy approaches, Beam emphasizes the reliability of its gene-editing platform as one of its appeals to investors.
Compared to older technologies, the company's editing methods are much more efficient at producing cells with the desired genetic features. That benefit is quite valuable in general, as cell therapies tend to be very cumbersome to produce at pretty much every step of the manufacturing process, but it's especially valuable in the context of a candidate like BEAM-201.
High efficiencies at the editing stage mean that it faces a lower chance of experiencing scrutiny from regulators, who are loath to see small populations of incompletely edited cells in a therapy product. It also means Beam doesn't need as many cells to use as raw materials to start the manufacturing process. Because BEAM-201 will, in theory, be both high in purity and fairly durable once it's infused into patients, the number of edited cells needed for dosing will be lower than it would be with competitors.
But don't call it a competitive advantage in low-cost gene editing and cheap cell-therapy manufacturing just yet. Beam will need to work on its platform and its programs for at least a few more years before it can test its luck and seek regulatory approval. On that front, it has cash and equivalents of just over $1 billion. Management believes that sum should be enough to last it through at least the start of 2025 given its current pace of research and development (R&D).
After that, it'll need to find more capital somehow and then likely spend a few more years in clinical trials before demonstrating its manufacturing prowess, assuming its medicines get approved.
A biotech to avoid: Editas Medicine
Editas Medicine (EDIT 1.92%) is also pursuing cell therapies for beta thalassemia and sickle cell disease, but unfortunately its odds of success are significantly longer than Beam Therapeutics. Its program for SCD and beta thalassemia is its only one in clinical trials, and it's currently in early-stage testing. In fact, it hasn't even dosed all of the 20 patients in the SCD wing of the trial yet.
Management thinks the company has enough money to make it through the third quarter of 2024. Given its cash and equivalents of $432 million and its trailing-12-month operating costs of $235 million, that seems quite optimistic.
At the same time, there does not appear to be much fat to trim without harming its future. Its unspecified pre-clinical oncology programs are the only ones in its roster that are approaching the regulatory filings necessary to enter the clinic. Cutting them would make the company's pipeline look even weaker.
Furthermore, its SCD and beta thalassemia program does not appear to have any competitive advantage to speak of yet. That's a problem, as players like Bluebird Bio and CRISPR Therapeutics are either already commercializing their candidates for the same illnesses or will be doing so imminently. Editas (and Beam) will be years behind.
For Editas, the issue is more pressing since it has no other clinical-stage candidates, nor does its pipeline appear to be on the brink of furnishing them. Nor does the biotech seem to have enough money to advance with the clinical programs it has. In short, steer clear.
