Financial conditions are tightening. The easy monetary policy of the last decade-plus may be coming to a screeching halt. That can be terrible news for cash hungry businesses, and few industries gobble up money quite like drug development.
To be fair, there are arguments in support of biotech stocks during quantitative tightening. They are largely inelastic to federal monetary policy after all. Nonetheless, there's no better supportive argument than having ample cash on the balance sheet.
If you're approaching the next 12 months with caution, then you may want to pay closer attention to cashed-up companies. Here are five biotech stocks with at least $1 billion in cash to start your research. They are presented in alphabetical order.
A Leader in an Emerging Field
Arvinas (ARVN) ended March 2022 with $1.43 billion in cash. The company is a leader in the emerging field of protein degradation, which may present a safer and more targeted way to reduce levels of disease-driving proteins. Protein degraders latch onto a protein, labeling it for destruction by a recycling process already present within cells.
The precommercial drug developer sports a market valuation of $2.2 billion. That's the lowest level since Arvinas announced a partnership with Pfizer (PFE) to develop a protein degrader for a certain type of breast cancer. The collaboration yielded $1 billion in upfront cash and could earn the innovator an additional $1.4 billion in milestone payments. The pharma titan is interested in the asset's potential to be used in combination treatments.
This is far from a one-trick pony though. Arvinas counts nine named programs in oncology and four more in neuroscience. If protein degradation becomes a validated therapeutic modality, then investors can expect additional research collaborations to be announced. If the program partnered with Pfizer proves successful, then this drug developer could be an easy acquisition target.
Will This Be the First Approved CRISPR Drug?
CRISPR Therapeutics (CRSP) ended March 2022 with $2.2 billion in cash. Investors can thank a lucrative collaboration with Vertex Pharmaceuticals (VRTX) for the solid balance sheet.
The duo is developing CTX001, a cell therapy candidate aimed at blood disorders beta thalassemia and sickle cell disease. Results have been impressive to date. In fact, data suggest the drug candidate could represent a functional cure for affected individuals.
The partnership was amended in 2021 to provide the Crispr pioneer a $900 million cash payment, the potential to earn a $200 million cash payment upon the first drug approval, and 40% of future profits. That makes CRISPR Therapeutics well-positioned to maintain a strong balance sheet, which will be needed to fund development of additional pipeline programs.
Although CTX001 has high odds of earning global regulatory approvals, the company's oncology pipeline has been a source of volatility recently. Data readouts suggest a certain type of universal cell therapy leads to impressive outcomes initially, but a high number of patients may relapse after six months. That could threaten the competitive positioning of these tools, and may make the company's $5.5 billion market cap a bit generous. Nonetheless, investors cannot rule out an acquisition in the coming years.
Cheaper Drugs Through a Global Buyers Club
EQRx (EQRX) ended March 2022 with $1.6 billion in cash. The company was founded with a noble mission to disrupt drug prices. There are certainly critics of the business model, but pulling it off could mark a seismic shift for the industry.
A carefully curated team includes experts across drug discovery, drug development, and commercial infrastructure. EQRx aims to develop drug candidates in some of the most important areas of medicine, then disrupt the market by offering them at radically lower prices. If the business can sign up enough large purchasers across the globe, then it can expand patient access and create downward pressure on drug prices broadly.
For example, the PD-1 inhibitor Keytruda will soon become the best-selling drug on the planet. Although over half a dozen PD-1 inhibitors have earned approval in the United States alone, selling prices for the drug class have actually increased in recent years. There's an unwritten rule in the industry that drug developers don't compete on price. EQRx has no interest in that silent agreement. It aims to develop multiple drug candidates aimed at PD-1 and the closely-related PD-L1, offer them for a fraction of the price of Keytruda, and ruffle feathers across the industry while stealing market share.
The approach has encountered some roadblocks early on. Meanwhile, the complex web of the American health care system – the world's largest – could pose the greatest challenge. Inertia can be difficult to overcome. Nonetheless, EQRx is an intriguing company on an important mission. It's worth keeping an eye on.
Putting Synthetic Biology on the Map
Ginkgo Bioworks (DNA) ended March 2022 with $1.5 billion in cash. The company isn't a drug developer, but provides genetic-engineering-as-a-service through its biofoundries.
Simply called "foundries" in the field of synthetic biology, these automated labs standardize science and generate massive quantities of data to create products and services using living organisms. Ginkgo Bioworks is far from the only company building foundries, but it's the most visible. The company's customers span biopharmaceuticals, industrial biotech, agricultural biotech, and more. Products span better gene therapy tools to microbes that could help crops reduce fertilizer requirements.
The company wisely took advantage of its unicorn status as a private startup and the euphoria in public markets to snag over $1 billion from its SPAC in 2021. That haul will easily fund multiple years of operations, numerous acquisitions, and help reduce anxiety related to the coming economic slowdown. For perspective, the business has more cash on hand than the combined market valuation of some of its closest peers, including Amyris (AMRS) and Zymergen (ZY). To be fair, Ginkgo Bioworks has an unproven business model, but a healthy balance sheet should buy time to develop recurring revenue streams.
Drugging the Undruggable
Mirati Therapeutics (MRTX) ended March 2022 with $1.3 billion in cash. The drug developer is best known for its lead drug candidate adagrasib. The experimental therapy targets the most common mutation in solid tumor cancers by inhibiting the KRAS protein.
Although KRAS was once considered "undruggable" by scientists, an emerging crop of drug candidates in the industry pipeline have demonstrated promising potential to treat cancers driven by the mutation. That opens a multi-billion-dollar market opportunity. In fact, it could one day become the largest economic opportunity in oncology.
Investors are rightly excited about the relative positioning of Mirati Therapeutics, but it faces fierce competition. Pharma titan Amgen (AMGN) earned the first-ever approval for this all-important mutation. The drug product, branded as Lumakras in the United States, is expected to generate over $300 million in full-year 2022 revenue and to eclipse $1 billion in annual revenue as soon as 2024.
To be fair, dueling data readouts suggest adagrasib and Lumakras may be roughly equivalent. The size of the market means both drugs could perform well even if Amgen earns a first-mover advantage. Investors will also be comforted knowing Mirati Therapeutics is developing a deep pipeline of oncology drug candidates. When coupled with the commercial potential of adagrasib, the $4 billion company could be an acquisition target in the coming years.
