Updated: May 19, 2020
Summary: Beam Therapeutics (NASDAQ: BEAM) IPO-ed in February, raising $188 M to advance their preclinical gene-editing platform. The company was founded in 2017 by three gene editing experts: David Liu, Ph.D. (Editas co-founder), Keith Joung, M.D., Ph.D. (Editas co-founder), and Feng Zhang, Ph.D. (one of the inventors of CRISPR gene editing). The CEO, John Evans, was a partner at the VC firm ARCH Venture Partners before joining Beam. Beam’s base-editing platform enables a single targeted base to be replaced while avoiding the double-stranded DNA breaks of the CRISPR/CAS9 approach. To use Beam’s favorite analogy, think of BEAM’s platform as the “pencil and eraser” versus the “scissors” of CRISPR/CAS9. We see Beam as having ~3x upside dependent on the company reaching the clinic in 2021 or 2022. Near-term (<12 months) inflection points are less predictable given the early nature of Beam’s pipeline, but with the company’s high profile team and platform, events such as strategic partnerships and collaborations could move the stock meaningfully upwards.
WX Capital is investing in BEAM (~5% of portfolio) given the scientific pedigree of the leadership group, clinical rationale for their next-generation gene-editing platform, anticipated impact of medium-term milestones (e.g., first patient dosed, first preliminary data), and opportunity to invest at an attractive price point versus IPO offering and all-time high. Given the company’s high profile, potential near-term inflection points could also include industry partnerships driving significant market interest, though our long-term investment thesis does not rely on this.
Beam has an exciting and differentiated gene editing technology platform with a crack team of scientific founders and well-connected early investors. Given the history of patent disputes in this space, Beam dedicated a lot of energy to securing a robust IP estate at launch, and are well-positioned on that front.
Current market cap of ~$1.1 B offers ~3x upside by ~2022, when we would expect the first programs to reach in-human trials: for reference, CRISPR Therapeutics (CRSP) has a market cap >$3.7 B with clinical-stage programs in sickle cell & beta-thalassemia and allogeneic CAR-T agents. Beam’s most advanced programs are also in sickle cell & beta-thalassemia and allogeneic CAR-Ts.
We believe that Beam will be competitively positioned in the future despite overlap in their pipeline with current gene editing companies: Beam may be able to more efficiently produce viable ex-vivo gene-edited therapies (e.g., allogeneic CAR-Ts, autologous cells for hematology), and may prove a safer technology for in vivo gene editing applications.
The company’s high profile founders and investors may drive significant market interest. Given the IPO priced at $17 and the stock has previously closed above $29, opening a position in Beam today in the $21 - 22 range offers substantial upside.
We anticipate that Beam will have little difficulty securing cornerstone industry partnerships to provide additional capital in the near-term if desired, given its well-connected and reputable leadership team.
Key Stock Drivers:
Clear clinical need for more precise gene editing tools: Direct base editing (rather than relying on non-homologous end-joining and homology-directed repair a la CRISPR/CAS9) could limit the unintended gene disruptions potentially introduced by double-stranded breaks. Beam could theoretically have a more precise and predictable platform that avoids some of the safety concerns with current technologies.
High-profile company pedigree and scientific leadership: Beam brings an incredibly respected management team and group of initial investors to the table, which both increases our confidence in the company and leads us to expect a lot of market interest in the stock over time. Additionally, Beam, if they choose to do so, is more than capable of pursuing strategic partnerships with larger industry players to bring in cash like many young platform companies do. These partnerships (and the cash, peer validation, and cache they bring) have historically driven up company valuations on their own.
Broad applicability of platform: Point mutations account for 58% of known human genetic variants associated with disease [Rees & Liu. Nature Reviews Genetics. 2018]. Applying Beam’s base-editing approach could theoretically address these types of genetic variants through gene correction. Beam’s platform could also be used for gene modification (e.g., introducing a protective genotype), gene regulation (via targeting promoter regions), and multiplex base editing (introducing multiple changes to the same cell). Potential applications of the latter include more efficient and complex engineering of cell therapies, which Beam is exploring via their allogeneic CAR-T programs.
Strong preclinical data for sickle cell and A1AT programs was presented at ASGCT 2020: Beam reported promising preclinical data for their sickle cell / beta-thalassemia programs that detailed high success rate for target base-editing and durable expression in in vitro and mouse models. Beam also detailed mouse model data for their A1AT program that suggests potential to address both the hepatic and pulmonary manifestations of A1AT deficiency (current therapies are not disease-modifying, while RNAi approaches would only address hepatic manifestations).
Strong war chest to build a fully integrated company around a unique platform: Beam reported >$250 M in cash, cash equivalents, and marketable securities in their 1Q20 filing. Beam launched with ~$90 M in series A funding in 2018, raised ~$135 M in their 2019 series B, and just received ~$190 M in their IPO. They have 12 listed targets in their pipeline across research and lead optimization studies, with their hematology (sickle cell disease and beta-thalassemia) and allogeneic CAR-T (ALL and AML) programs being furthest along. Beam expects a “wave” of IND filings in 2021, and will almost certainly be running up quite the tab between now and then given their broad pipeline and ambitions. Even so, $250 M on hand is a good start.
Key Stock Risks:
Long wait time to clinical data: Beam’s self-reported expectation for IND filings is 2021, assuming preclinical work runs smoothly. This means we aren’t going to see preliminary clinical data before mid-late 2021 or 2022 at the earliest. In our experience, the market generally does not move much in response to positive preclinical data or IND clearance, while delays in IND filing can drive down valuation. Buying now exposes us to the risk that preclinical / pre-IND work is significantly delayed. Regarding Covid, Beam has informed investors that the company has been able to conduct its research activities remotely and we do not anticipate its preclinical timeline will be significantly impacted.
Early slate of programs (e.g., hemoglobinopathies, allogeneic CAR-Ts, GSD 1a, A1AT) are tackling crowded indications: The long time to clinic is further complicated by the fact that Beam will be playing catch-up across much of their initial slate of programs. While the scientific rationale for these programs as proof points for the platform is sound, we have some concerns that evolving competition could significantly raise the bar for success by the time Beam is ready for pivotal trials / commercial launch.
Likely need for additional cash within the next few years may dilute shareholders: Beam will need a lot of cash to execute on their ambitious pipeline and lay the foundations to be a fully integrated company (e.g., investments in manufacturing capabilities). If Beam seeks financing via further equity offerings in the next few years, current shareholders may be diluted.
We currently own shares of Beam Therapeutics. This article expresses our own opinions, not Beam’s or any other party’s opinion. We are not receiving compensation for this report. We do not have a business relationship with the company mentioned in this report.