Don’t invest in stories. Don’t invest in a company before they have meaningful revenues. Don’t invest in drug developers that have a great deal of regulatory risk. These are all rules we need to break if we want exposure to a technology that allows mankind to start playing with the recipe of life – gene editing.
After evaluating 27 gene editing stocks, we were left with five names. Editas Medicine (EDIT) was then shown the door in much the same way their Chief Medical Officer was this past February. That was just one of many C-level positions that have come and gone for a company that’s behind the eight ball with one of their lead candidates – EDIT-301 – at least relative to the progress being made by CRISPR Therapeutics (CRSP). The other Editas lead therapy – EDIT-101 – is making slow progress after their pharmaceutical partner backed out. Given we have a limited number of positions in our tech stock portfolio, there’s also an opportunity cost associated with holding Editas Medicine. So, we exited our small position and replaced it with Beam Therapeutics (BEAM).
About Beam Therapeutics Stock
In a September 2019 piece titled A Base Editing IPO from Beam Therapeutics, we discussed the company’s technology – “base editing” – which is a form of precision gene-editing that replaces single letters (C, T, G, A) without inducing a double-strand DNA break. Also called “point mutations,” incorrect single letters are responsible for approximately 58% of genetic errors associated with disease. All three co-founders of Beam Therapeutics – Feng Zheng, David Liu, and Keith Joung – were also co-founders of CRISPR pioneer Editas Medicine (EDIT) and licensed their own intellectual property to the company. This is a good segue into talking about the portfolio of gene editing technologies that Beam Therapeutics has assembled.
We initially thought that base editing and CRISPR were two different things, but that’s not the case. Base editing “leverages the established DNA-targeting ability of CRISPR,” but doesn’t cause a double-stranded break, something George Church described as “genome vandalism.” When you’re mucking around with someone’s genetic recipe, precision is extremely important. Base editing uses CRISPR to target the site where the change takes place and then uses a base editing enzyme to make the actual change.
This begs some immediate questions.
- Is there a better gene editing technology on the horizon?
- Are there alternative base editing approaches that fall outside the Beam Therapeutics intellectual property umbrella?
- What commercial interest has this technology attracted?
Let’s start with the second question. One can be sure that the founders of Beam Therapeutics learned from their experiences at Editas and wrapped up their IP portfolio tighter than a drum. Coincidentally, one of the companies Beam Therapeutics licenses technology from is Editas. In Beam’s most recent 10-K filing you can read about the primary sources of intellectual property for Beam which include the following parties:
- 2017 License Agreement with The President and Fellows of Harvard College (pages 22,23,24) – C-to-T, A-to-G, and C-to-G base editors, for the treatment of certain diseases and conditions and to base editing, more generally
- 2018 License Agreement with Editas Medicine, Inc. (pages 24,25) – related to certain base editing technologies and CRISPR technology
- 2018 License Agreement with The Broad Institute, Inc. (pages 25,26,27) – certain rights to RNA base editing technology, including Cas13 linked to a deaminase to deliver single base edits and the Cas12b nuclease family of gene editing enzymes.
- 2019 License Agreement with Bio Palette Co., Ltd (page 28) certain patent rights related to base editing owned or controlled by Bio Palette
Editas Medicine investors will be curious about the second bullet point which describes an arrangement where Editas receives “royalty rates that it owes to Broad Institute, Harvard, or MGH” along with “low- to mid-single digit royalty on net sales of licensed products” if – and only if – such product is covered by a licensed Editas-owned patent. In the last 10-K from Editas Medicine, we see much the same information provided. Editas received equity from Beam Therapeutics and sold it after the IPO. That’s all the information that’s been made available so far.
The second bullet point describes the method which Beam Therapeutics uses to edit DNA. You may recall the term “CRISPR-Cas9” which refers to the guide (CRISPR) and the editing tool (Cas9). In Beam’s case, they’re not using the enzyme Cas9, they’re using enzymes Cas13 and Cas12b which are nicely described in a PDF by Research Arc, part of which can be seen below (our highlights in yellow).
As gene editing technology evolves, we’re learning that there’s more than one way to skin the CRISPR cat. This brings up the second question we raised earlier – is there a better gene editing technology on the horizon? Perhaps, but if base editing is “good enough,” then we would expect to see some big partners signing on since Beam Therapeutics has managed to secure elements of exclusivity in their licensing agreements.
Through a license agreement with the Broad Institute of MIT and Harvard, Beam has exclusively licensed the use of certain RNA base editing technology and Cas12b nuclease technology for all applications.
Credit: Beam Therapeutics
Let’s assume that Beam Therapeutics has a defensible IP portfolio to perform base editing using Cas12b and the method works as intended. (That’s a big assumption, but we’re hoping that the world’s leading experts in gene editing know what they’re doing on the technology side of things.) They now need partners to bring drugs to market ASAP so they can focus less on surviving and more on thriving. The bigger the name the better, and one household name they’ve gotten into bed with is Pfizer.
The Pfizer Deal
In 2021, Pfizer (PFE) was the biggest pharmaceutical company by revenues ($81.3 billion), but that’s a bit misleading when you consider that 45% of those sales ($36.8 billion) came from Covid-19 vaccine sales. Nonetheless, Pfizer is one of the world’s biggest pharmaceutical companies (third by market cap), and late last year they entered into a four-year research collaboration agreement with Beam Therapeutics for three targets for rare genetic diseases of the liver, muscle, and central nervous system. That came with an up-front payment of $300 million (recognized as revenue over 4 years) and future milestone payments of up to $1.35 billion (across all three programs) and the option for Beam Therapeutics to partner with Pfizer on bringing one of the three treatments to market. This would involve sharing “net profits as well as development and commercialization costs in a 65%/35% (Pfizer/Company) split for such program.”
If Pfizer does not exercise its “Opt-In Right” for any or all of the three programs, they then revert back to Beam which then pays Pfizer “a low single digit percentage of net sales” earned over a ten-year period. Investors in Beam better hope that Pfizer moves forward with at least one of those programs. Whenever a large pharmaceutical backs out of an agreement, that’s the kiss of death. We noted something similar with Editas when Abbvie backed out and partnered with Caribou instead. Looks like we’ll need to wait four years to find out what Pfizer ends up doing, though we’ll likely have indications before then of what outcome is likely. In the meantime, Beam has other irons in the partnership fire.
With a focus on utilizing engineered cells as medicines, Sana Biotechnology (SANA) raised some eyebrows in early 2020 when they closed a massive $700 million Series A funding round. Just over a year later, they raised another $587 million in an initial public offering that was the largest-ever for a preclinical biotech company. The first day of trading saw a valuation of over $6 billion, but today they’re dipping their toes in the death zone with a market cap of $957 million. Around $50 million of the firm’s cash was paid to Beam Therapeutics in October 2021 for “non-exclusive rights to its CRISPR Cas12b nuclease system for the development and commercialization of certain engineered cellular therapy programs.” It’s early days for Sana, and we’d be more concerned that they can survive long enough to get a drug to market.
With a market cap of $4.7 billion, Apellis Pharmaceuticals (APLS) is also focused on delivering engineered cells as medicines, and the company’s first success story is a medicine they just started marketing – EMPAVELI – which is used to treat a rare blood disorder called paroxysmal nocturnal hemoglobinuria. Like the Pfizer deal, Apellis has a predetermined number of development programs using base editing technology – six in this case – with the opt-in right to proceed or hand over the reigns to Beam. If one or more programs moves forward, Beam has the right to enter into a 50-50 U.S. co-development and co-commercialization agreement for one program. An upfront payment of $50 million was made to Beam in July 2021 and another $25 million will arrive in July 2022. These revenues will be recognized over the five-year term.
Remember that concern we raised about new gene editing technologies on the horizon? While most wantreprenuers are trying to figure out the perfect domain name for their big idea, people like David Liu are founding companies faster than we can keep track of. After co-founding Editas Medicine, then Beam Therapeutics, Mr. Liu founded Prime Medicine which has raised $315 million so far to bring the world “prime editing,” a new gene editing technology with the potential to address more than 90% of known disease-causing mutations.
Prime Editing is a technology that acts like a DNA word processor to “search and replace” disease-causing genetic sequences at their precise location in the genome, without causing double-strand DNA breakage.
Credit: Prime Medicine
In September of 2019, the two companies swapped technology licenses and stock which is about the extent to which they appear to be collaborating thus far.
You know you’re getting old when you start popping pills for cholesterol. Loads of people take pills like Lipitor, a blockbuster drug that netted Pfizer upwards of $150 billion. That number has likely increased since Kiplinger reported it in 2018 while naming Lipitor the biggest blockbuster drug of all time. It’s an opportunity ripe for disruption, and Verve Therapeutics (VERV) – a company co-founded by Keith Joung who co-founded Beam Therapeutics – plans to develop a one-and-done shot for treating high cholesterol using the powers of gene editing and numerous other technologies, some of which were licensed to Beam in a technology exchange that’s similar to the Prime Medicine deal.
And on that note, this article is getting way too long. If you’re interested in reading more detail about the notable Beam Therapeutics partnerships we’ve discussed in this piece, just search the latest 10-K using the text strings provided below (search for the text within in the quotes):
- Pfizer: “F-28”
- Sana Biotechnology: “F-29”
- Apellis Pharmaceuticals: “F-29”
- Prime Medicine: “F-30”
- Verve: “F-31”
Beam’s Internal Programs
Beam also has a number of internal programs in their own portfolio. They’re using base editing to pursue the development of two complementary approaches to treating sickle cell disease (BEAM-101 and BEAM-102), and one approach to treat beta-thalassemia (BEAM-101). The one to watch is BEAM-101 which plans to enroll the first subject in the second half of 2022.
We are preparing to initiate our BEACON-101 trial, a Phase 1/2 clinical trial designed to assess the safety and efficacy of BEAM-101 for the treatment of sickle cell disease. The BEACON-101 trial is expected to include an initial “sentinel” cohort of three patients, treated one at a time to confirm successful engraftment, followed by dosing in up to a total of 45 patients.
Credit: Beam Therapeutics
When we compare the potential of Beam Therapeutics to Editas it’s easy to see why we’d prefer to hold the former over the latter. That said, this is still an exceptionally risky stock that needs to simply focus on surviving until the money spigot gets turned on from one or more partnerships or even their own internal pipeline.
Figuring out how long a company can survive is a matter of calculating runway. To keep this simple, we’ll use earnings as a proxy for losses. In 2021, the company saw losses average $92.5 million per quarter with Q1-2022 coming in at $70 million in losses. Assuming $90 million in losses per quarter and $1.2 billion in cash exiting Q1-2022, we get a runway of 3.33 years after which the company needs to raise more money. If we add to that number the $300 million in Pfizer revenues that will be recognized over the next four years, it seems like Beam Therapeutics may be able to stay afloat long enough to see the Pfizer outcome. We’ll conclude this by saying that if none of the three programs Pfizer is working on move forward, then that won’t bode well for Beam Therapeutics.
There doesn’t have to be a single “winner” when it comes to gene editing. The various methods and technologies on offer may lend themselves to different applications in much the same way we see metal 3D printing evolving. That said, we want exposure to those companies which seem to be making the most progress with whatever tools they might be wielding. The pedigree of Beam’s founders gives us hope that the tools they’ve settled on are sufficient to propel forward therapies that cure diseases for which there is no current cure. In four years’ time we ought to know if that’s the case.
We’ve now covered two of the five finalists in our gene editing stock selection exercise. Next up, we’ll look at what the remaining three companies are getting up to.
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