Cathie Wood, founder and CEO of Ark Invest, has a unique approach to investing. She targets companies that are creating and applying disruptive technologies in fields such as artificial intelligence (AI), autonomous vehicles, genomics, and biotech. These companies have the potential to deliver sizable returns in a short time span, but they also come with a high degree of uncertainty and volatility.
Wood believes that by investing in innovation, she can capture the long-term growth opportunities that traditional investors miss. As a result, she hasn't hesitated to buy shares of early-stage innovation companies well ahead of the Wall Street crowd.
Prime Medicine (PRME 2.91%) is a perfect example. Wood has been purchasing shares of the pre-clinical gene-editing company for her ARK Genomic Revolution ETF (ARKG 0.74%) since the company's initial public offering (IPO) in October of 2022.
Prime Medicine employs a platform known as prime editing, which has been billed in the academic literature as potentially superior on multiple fronts compared to earlier forms of gene editing, such as CRISPR/Cas9 and base editing. However, the technology is still in the pre-clinical (nonhuman) testing phase, and many questions remain about its applicability to human diseases.
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Should investors take a page from Wood's playbook on this potentially game-changing biotech, or is it best to take a wait-and-see approach? Let's dig deeper to find out.
Opportunities and risks
Prime Medicine's therapeutic platform is built for speed and broad applicability. At present, the company is developing candidates for 18 potential indications spanning a wide range of conditions, such as chronic granulomatous disease (a rare blood disorder), retinitis pigmentosa (an inherited eye disease), and cystic fibrosis (a genetic disorder that impacts the lungs, pancreas, and other organs).
These conditions represent substantial commercial opportunities for the company. Prime Medicine expects to file the regulatory paperwork to begin its first human trial sometime in 2024.
If the company can hit on a handful of these high-value indications, it could be a bona fide home run stock over the course of the next 10 years. After all, the company's market cap currently sits at a mere $687 million at the time of this writing, which pales in comparison to the multibillion-dollar commercial opportunity inherent in its pipeline.
There is an important financial risk factor investors should carefully consider, however. At the end of the most recent quarter, Prime Medicine had cash, cash equivalents, and investments totaling $178.8 million. The company also lost $50.7 million during the three-month period. So, before Prime Medicine even reaches the human trial stage of its lifecycle, it may need to raise a substantial amount of capital. Human trials, after all, are extremely expensive.
Now, a capital raise could very well materialize in the form of a partnership with a major biopharma, which would be a win for Prime Medicine and its shareholders. But there's also a chance the company may have to raise money in a down market and with its share price under the $10 mark. This key risk factor is probably one of the main reasons its shares have nosedived since its IPO a little over a year ago.
Is Prime Medicine stock worth buying?
This next-generation gene-editing technology is certainly intriguing. But the risk involved with pre-clinical and early-stage biotechs is hard to ignore, especially in a high interest rate environment. So, in all, Prime Medicine screens as a compelling watchlist candidate but not a table-pounding buy at this point in its lifecycle.
