Before taking the plunge into a pre-revenue gene-editing stock like Beam Therapeutics (BEAM -1.02%), which is probably years away from making any money, it's important to pause for a beat to evaluate the arguments for and against an investment. The best time to invest in biotechs is well in advance of major milestones, which means right now is a good time to be thinking about whether to buy shares of Beam.
If you're an optimist, it will be easy to find things that you agree with about the bull case -- and that's why you owe it to yourself to hear what the bears have to say. They might have thought of some things you didn't. So without further ado, let's look at these two arguments and then decide which is more persuasive.
The bull case: Plenty of cash to fund its research
The bull thesis for Beam Therapeutics is that it has a good shot at reaching its medium-term catalysts , which would then enable it to raise more capital and hopefully commercialize its most promising candidates a bit further down the line. In concrete terms, with the resources it has, it should be able to reach the end of phase 1/2 clinical trials with its candidate for treating or curing sickle cell disease (SCD) and beta thalassemia, conclude phase 1 trials for its acute myeloid leukemia (AML) program, and initiate a pair of phase 1 trials for treating two hereditary diseases.
Right now, it has more than $1 billion in cash, equivalents, and short-term investments, and its trailing-12-month operating expenses are $461 million. On October 19, the company reported that it will be trimming its workforce by 20% in Q4, and it thinks that will save it enough money to extend its cash runway to 2026 at a minimum. Importantly, it should also have enough cash to fund its research and development and clinical operations to advance its most mature programs to their next major milestone.
Notching each of those accomplishments on schedule would buoy its share price and potentially attract collaborators. Beam already has a powerful friend in its corner. Under a strategic deal with Pfizer, it could earn up to $1 billion in milestone payments from co-developed programs, along with the option to realize a 35% share of the profits (and costs) of any medicines their collaboration brings to market.
And for early stage biotechs, arrangements like Beam has with Pfizer can be a lifeline as well as a major driver of internal organizational growth in advance of being able to market a medicine for the first time.
In the long term, the bull thesis also points to the value of the company's gene-editing platform. If the utility of its platform is validated in the course of its clinical trials or its work as a collaborator for other biopharmas, it will be another major tailwind for the stock. That validation could come in the form of getting regulators to give their stamp of approval for commercialization of one of Beam's candidates, or it could be in the form of many of its peers requesting to license its editing or manufacturing technologies.
The bear case: It's got a lot of competition
One major challenge for Beam is that there is no guarantee it will be able to find a share of the increasingly crowded market for gene therapies that treat or cure both beta thalassemia and sickle cell disease.
Bluebird Bio, CRISPR Therapeutics, and Editas Medicine all have their eyes on developing treatments for the same two conditions, and they aren't the only ones. Bluebird is already competing in beta thalassemia treatment with its gene therapy called Zynteglo, and its candidate for SCD could soon be approved for sale, too. CRISPR is trying to get its treatment for both conditions approved right now using roughly the same approach scientifically. And Editas' programs are still in the early stages, but that might not stop it from beating Beam to the market.
Whenever the therapies made by these companies cure a patient, Beam's target market shrinks. All three of the contenders above are advertising their programs as near-cures or cures. As Beam also intends to use the same biological mechanisms as the other players for its treatment, it's unclear what competitive advantage its candidate could have therapeutically. By the time it has a shot at regulatory approval for its candidates, the market might be gone altogether.
Then there is the standard set of risks with early stage biotech stocks. It has quite a few clinical and regulatory milestones to clear before it has the opportunity to sell its medicines. Each one of those milestones entails the risk of falling short, sending its share price cratering.
This one's for speculators only, for now
Beam's balance sheet looks OK from the standpoint of today. But the company will doubtlessly need to raise more money sometime between now and when it has the chance to commercialize any of its candidates. With $177 million in debt already, it might need to issue new stock to get its medicines out the door, and that will dilute the value for investors who buy it now.
If you haven't adequately diversified your portfolio yet, this stock is not an appropriate choice. Buy safer investments first. Likewise, if you find risky biotech investments that won't pay off for years to be unsettling in any way, look elsewhere.
The other side of the coin is that the elements of the bull thesis are valid. Beam Therapeutics has the money (at least for now) to prove that its platform is capable of scoring big wins in the clinic. So if you're in the market for a company that could deliver huge growth if it doesn't go bust first, it's an acceptable pick. Just don't forget that this is a speculative investment.
