Cathie Wood, the widely known founder and CEO of ARK Invest, has garnered a reputation for her forward-thinking investment strategies, particularly in disruptive innovation. Her flagship exchange-traded fund (ETF), the ARK Innovation ETF (ARKK), has consistently attracted attention due to its active management style, as well as its focus on cutting-edge technologies and high-growth sectors. Among her closely watched ARKK holdings, Wood has placed bets on multiple biotech companies, reflecting her confidence in the industry's transformative potential.
Biotechnology is a field characterized by rapid innovation and substantial breakthroughs, often leading to significant market revaluations. In this article, we'll delve deeper into three biotech stocks within the ARKK ETF - Intellia Therapeutics (NTLA), Prime Medicine (PRME), and Beam Therapeutics (BEAM) - that not only reflect Wood’s forward-thinking investment philosophy, but also have extremely bullish growth forecasts from Wall Street analysts.
These companies have a strong position in gene editing, precision medicine, and novel therapeutics, boasting strong pipelines, innovative approaches, and the potential to make significant impacts on healthcare. Their inclusion in the ARKK ETF underscores Wood’s confidence in their future prospects.
Let’s take a closer look at these stocks.
1. Intellia Therapeutics
Valued at $2.1 billion, Intellia Therapeutics (NTLA) is a Massachusetts-based clinical-stage genome editing company that develops curative therapeutics using the CRISPR/Cas9 system. This technology allows for permanent gene editing to correct disease-associated genes with a single treatment and creates engineered cells for treating cancer and immune diseases.
ARK Innovation ETF owns 7.88 million shares of the gene editing company, making it the No. 12 ARKK holding by weight at 2.80%.
Shares of Intellia have lost 30.9% over the past six months, underperforming the SPDR S&P Biotech ETF’s (XBI) gain of 20.7% over the same time frame.
Some analysts believe that NTLA's underperformance makes the company attractive to dip buyers. In a note dated May 6, Cantor Fitzgerald identified its top 14 biotech stock picks - including Intellia Therapeutics, which the investment bank considers significantly undervalued and deserving of a “fresh” look. Cantor mentioned that it could justify a higher valuation for Intellia, given the market potential of its hereditary angioedema program. Cantor added that they would consider buying ahead of the upcoming readout for Alnylam's HELIOS-B study, expected in late June or early July.
Wells Fargo (WFC) recently published its annual biopharma M&A screen, which features weight-loss drug developer Viking Therapeutics (VKTX) and gene editing firms CRISPR Therapeutics (CRSP) and Intellia Therapeutics as potential acquisition targets for 2024. The investment bank identified 31 companies within the biopharma small/mid-cap space that exhibit a high or medium alignment with large-cap pharmaceutical companies, such as AbbVie (ABBV), Amgen (AMGN), Bristol-Myers Squibb (BMY), Gilead (GILD), Merck (MRK), and Pfizer (PFE). The report arrives amid a surge in biopharma M&A activity. According to a recent release from data analytics firm GlobalData, deals valued at $1 billion or more in the pharmaceutical and biotechnology industry increased by 71% in Q1 2024 compared to last year.
Intellia is developing a range of CRISPR-based therapies, both in vivo and ex vivo, targeting life-threatening diseases with significant unmet medical needs. Notably, Intellia’s in vivo programs are more advanced, while its ex vivo efforts are currently confined to research programs. The company’s primary candidate, NTLA-2001, currently in late-stage clinical trials, is an investigational in vivo CRISPR-based therapy intended as a single-dose treatment. It aims to deactivate the TTR gene, thereby halting the production of TTR protein to address transthyretin amyloidosis. Intellia outlines the substantial global market opportunity for NTLA-2001, projected to reach more than $11 billion by 2029.
On May 9, Intellia Therapeutics reported results for the first quarter of 2024. The company’s collaboration revenue surged by 129.5% year-over-year to $28.94 million, beating the Wall Street consensus by $19.87 million. The revenue increase was mainly attributed to the recognition of $21.0 million of previously eliminated intra-entity profit under the AvenCell license and collaboration agreement.
Intellia’s Q1 net loss expanded to $107.4 million from $103.1 million, or $1.12 per share - but exceeded analysts’ projections by $0.25. The company ended the first quarter of 2024 in a solid financial position with approximately $953 million in cash. During the conference call, CFO Goddard stated, “We expect our cash balance to fund our operating plans into late 2026.”
In terms of valuation, the stock is trading at 30.12 times forward sales, which is higher than the sector median of 3.63x, but lower than its own five-year average of 90.64x.
Intellia stock has a consensus “Strong Buy” rating. Out of the 26 analysts covering NTLA stock, 18 analysts recommend a “Strong Buy,” 2 advise a “Moderate Buy” rating, and 6 recommend a “Hold.” The average analyst price target for the stock is $72.69, indicating a potential upside of 240% from current price levels.
2. Prime Medicine
Massachusetts-based Prime Medicine (PRME), a biotechnology company with a market cap of $777.8 million, is dedicated to developing versatile gene editing technology. This technology aims to search and replace genetic sequences to restore normal genetic function and address the root causes of disease.
ARK Innovation ETF owns 2.7 million shares of Prime Medicine, making it the No. 33 ARKK holding by weight at 0.28%.
Shares of Prime Medicine have gained 31.7% over the past month.
On April 29, Prime Medicine announced that the FDA had approved the company’s Investigational New Drug (IND) application for PM359, which was submitted on March 29, for the treatment of chronic granulomatous disease, enabling the company to commence its global Phase 1/2 clinical trial in the United States.
Citi upgraded Prime Medicine to “Buy” from “Neutral” on May 15, with a $10 price target. Following the FDA clearance of an IND application for PM359, the company’s management reiterated guidance for advancing multiple pipeline programs throughout the remainder of the year, as stated by Citi’s analyst in a research note to investors. Prime's in vivo programs are still several years away from entering the clinic, but it’s promising that many are progressing into lead optimization or IND-enabling studies within the next 12-24 months, the firm added.
On May 20, H.C. Wainwright initiated coverage of Prime Medicine with a “Buy” rating and a $10 price target. The firm believes Prime has the potential to be a disruptive force in gene editing, delivering next-generation gene and cell therapies for genetic diseases and beyond.
Prime Medicine has designed its therapeutic platform for rapidity and extensive applicability. Currently, the company is working on candidates for 18 potential indications, covering diverse conditions like chronic granulomatous disease, retinitis pigmentosa, and cystic fibrosis.
Prime Medicine’s first-quarter report, released on May 10, highlighted the company’s strategic emphasis on research and development, a crucial factor for long-term success in the biotechnology industry. Notably, the company’s Q1 research and development expenses increased by 22.3% year-over-year to $37.8 million, primarily due to higher costs associated with advancing its pipeline and platform. General and administrative costs also rose 21.7% year-over-year to $11.2 million in the first quarter of 2024, primarily due to increased personnel costs. As a result, the company’s first-quarter net loss widened to $45.8 million from $39.4 million in the year-earlier period.
That said, Prime Medicine has maintained a healthy cash position. As of March 31, Prime Medicine’s cash, cash equivalents, investments, and restricted cash totaled $224.2 million, which the company believes will cover its operating expenses and capital expenditure needs until the third quarter of 2025.
In terms of valuation, the stock currently trades at 168.67 times forward sales, significantly higher than the sector median of 3.63x, indicating expectations of strong sales growth as the pipeline matures.
Prime Medicine stock has a consensus “Strong Buy” rating. Out of the 12 analysts offering recommendations for the stock, nine analysts recommend a “Strong Buy,” and three give a “Hold” rating. The mean target price for PRME stock is $14.45, which is 123% above Friday’s closing price.
3. Beam Therapeutics
Beam Therapeutics (BEAM), a biotechnology company valued at $1.9 billion, develops DNA-based editing technologies for treating human diseases.
ARK Innovation ETF owns 5.32 million shares of Beam Therapeutics, making it the No. 19 ARKK holding by weight at 2.06%.
Beam Therapeutics stock has gained 12.3% over the past month.
On March 26, Beam Therapeutics disclosed that its application for clinical trial authorization for BEAM-302, an in vivo base editor aimed at treating patients with alpha-1 antitrypsin deficiency, was approved by the United Kingdom Medicines and Healthcare Products Regulatory Agency.
BEAM’s pipeline comprises a diverse range of programs centered on gene editing, all leveraging a technology called base editing. This method offers a more precise gene editing approach compared to the previous CRISPR-Cas9 system, which functions by inducing double-stranded breaks at specific DNA locations. As a result, the cell’s inherent repair mechanisms mend these breaks, thereby introducing alterations or edits to the DNA sequence. With a strong and varied product pipeline, BEAM is positioned as a frontrunner in precision genetics.
It’s noteworthy to highlight that BEAM has strategic partnerships with Pfizer, Apellis, Verve, and Sana, yielding $675 million in upfront payments and potentially exceeding $1 billion in milestone payments.
On May 7, Beam Therapeutics reported earnings for the first fiscal quarter of 2024. In Q1, the company's net loss rose to $98.7 million, or $1.21 per share, compared to $96.5 million, or $1.33 per share, in the same quarter last year. Analysts expected a larger net loss per share of $1.44. The company’s license and collaboration revenue fell 69.4% year-over-year to $7.4 million, missing analysts’ projections by $7.25 million.
BEAM boasts a well-capitalized balance sheet, holding $287.8 million in cash, $806.7 million in marketable securities, and virtually no debt. Beam anticipates that its cash, cash equivalents, and marketable securities as of March 31, will sustain the company's anticipated operating expenses and capital expenditure needs until 2027.
In terms of valuation, the stock presently trades at 37.51 times forward sales, surpassing the sector median of 3.63x.
Beam Therapeutics stock has a consensus “Moderate Buy” rating, with a mean target price of $49.50, which indicates an upside potential of about 107.8% from current levels. Out of the 15 analysts covering BEAM stock, eight recommend a “Strong Buy” and seven recommend a “Hold.”
