Biotech stocks are amid a multiyear slump. While it would be easy to lay the blame squarely on the Federal Reserve's dramatic rate hikes, that's not the whole story. Far from it. In reality, many biotechs brought this situation upon themselves.
During the previous bull market, scores of preclinical and early-stage biotechs went public without having much to offer besides hype. Many of these companies also lacked a clear business strategy, which doomed them once the Fed ended its highly questionable experiment with near-zero interest rates.
Predictably, the industry has seen a wave of bankruptcies and dissolutions in 2023. But that's not a bad thing. In fact, several developmental biotechs who got dragged down by the undertow (but still managed to survive) now screen as incredible buys for investors with a five to 10-year outlook.
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Here is a nuts and bolts overview of two clinical-stage biotech stocks that may be badly mispriced right now.
1. CRISPR Therapeutics
CRISPR Therapeutics (CRSP 0.34%), as the company's name implies, operates at the forefront of the gene-editing revolution. The company appears to be on the cusp of earning the first-ever Food and Drug Administration (FDA) approval for a CRISPR/Cas9 gene-edited product, its rare blood disorder therapy exa-cel. But there's so much more here. CRISPR also has plans to bring game-changing therapeutics to market for cancer, cardiovascular disease, and diabetes, among others.
We could be witnessing the birth of the next Amgen, given the broad applicability of the biotech's platform. Yet, CRISPR currently sports a meager $4 billion market cap at the time of this writing. Risks still abound with this tech in general, and this company in particular. However, this leader in the gene-editing space arguably warrants a deeper dive by investors on the hunt for potentially life-altering capital appreciation opportunities.
2. Beam Therapeutics
Beam Therapeutics (BEAM -1.02%) is striving to push the envelope of genome editing to the next level. The company's tech is known as base editing, which is designed to be a more precise and flexible form of genomic medicine relative to predecessors like CRISPR/Cas9. At present, Beam is emphasizing its programs in sickle cell disease (a rare blood disorder) and an uncommon protein-manufacturing condition called alpha-1 antitrypsin deficiency.
The company recently inked a lucrative deal with Eli Lilly involving an up-front cash payment, along with an equity investment, in exchange for its commercial rights to Verve Therapeutics' cardiovascular disease base-editing program. This deal ought to extend the biotech's cash runway significantly, lowering the risk of a large public offering in the near term.
In all, Beam is several years away from producing a commercial-stage product. But its tech could serve up best-in-class treatments for a range of devastating inherited conditions over the next decade. Put more directly, Beam is definitely on the deep value end of the pool at this point in its lifecycle, but it may still be worthy of consideration in light of its groundbreaking platform and minuscule market cap of approximately $1.98 billion.
