Is Beam Therapeutics a good stock to buy now?

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Risky biotech start-ups that have boomed in recent years cannot take a break in 2022. Beam Therapy (NASDAQ: RADIUS) recently signed a major research contract with Pfizer (NYSE: PFE) it could be worth up to $1.35 billion, and hardly anyone seemed to notice.

This was clearly great news for Beam Therapeutics, but a stock market despised for clinical-stage biotech stocks did not react as anyone familiar with the company would have expected. Instead of soaring in response to the deal with Pfizer, Beam Therapeutics stock actually fell nearly 2% on the day of the announcement.

Almost every biotech stock has been in the niche lately and it looks like the market has missed something here. Let’s take a closer look to see if Beam Therapeutics is a smart buy right now.

Image source: Getty Images.

A good deal

Over the past few years, Pfizer has watched its peers experiment with CRISPR-based gene-editing techniques without making significant investments. Beam Therapeutics’ core-editing technology, however, really caught the eye of big pharma.

Instead of removing and replacing entire swaths of genetic material like Intellia, and CRISPR therapeutics (NASDAQ: CRSP), Beam Therapeutics is pioneering a more precise method called base editing. This involves modifying a single letter of genetic material at a time, which is much more useful than it sounds. About half of all known genetic variations associated with disease are caused by point mutations.

Pfizer will pay Beam Therapeutics an upfront payment of $300 million to discover new drug candidates for three undisclosed targets that will not compete with Beam’s existing programs. Beam is eligible for up to $1.05 billion in milestone payments if all three become commercially successful.

Beam Therapeutics is eligible to receive royalties at an undisclosed percentage of worldwide sales for each future program. Beam Therapeutics even has the option to co-develop and co-market one of the future candidates for a greater reduction in sales.

Look forward

Beam Therapeutics ended September with $934 million in cash after operations spent $329 million in the first nine months of the year. Pfizer’s cash injection should boost the company’s cash balance enough to see it through 2023 before it needs to tap investors for more.

It is unclear whether Pfizer will decide to license a candidate from Beam Therapeutics. If Pfizer drags its feet, the gene-editing startup has its own preclinical-stage programs that might stand a chance of impressing investors before it’s time to raise capital again.

The most advanced candidate in Beam’s pipeline today, BEAM-101 is an investigational gene therapy for the treatment of sickle cell disease. The company does not expect to begin enrolling patients for the first clinical trial with BEAM-101 until the second half of 2022.

With a recent market cap of $4.5 billion, there’s already plenty of success for Beam’s pipeline embedded in the stock. Unfortunately, the road ahead could be much more difficult than investors expect. Last year, Vertex Pharmaceuticals (NASDAQ: VRTX) and its collaborative partner CRISPR Therapeutics have reported very encouraging results from a clinical trial with CTX001 that began in 2018.

CTX001 is an investigational gene therapy for sickle cell disease that is similar to BEAM-101 in that it encourages the production of fetal hemoglobin. If the first interim data that Beam Therapeutics publishes in a few years does not appear competitive with CTX001, the stock could fall. While this is a gene-editing stock to watch, it’s still a bit too risky to buy right now.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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