A Complete List of 27 Gene Editing Stocks
Synthetic biology is the single most exciting technology we know of, but execution has been problematic. From Intrexon to Zymergen, synthetic biology stocks have punished investors for believing that harnessing the most powerful technology known to man – nature – was going to be easy. While we couldn’t be more excited about the potential of Ginkgo Bioworks, we’re on the sidelines and proceeding with extreme caution.
A great pick and shovel play on synthetic biology is gene editing which provides a crucial tool for humans to change the recipe of life to accomplish all sorts of things. When the academic pioneers of this craft began taking their startups public, we were in no position to determine which company had the best technology and intellectual property (IP) to protect it. Nobody else could for that matter, since there’s been an ongoing battle over who owns the rights to select gene-editing technologies. Today, the landscape has changed, and it’s time for us to reconsider what stocks we should be holding for sufficient exposure to a technology that lets mankind play God.
Investing in Gene-Editing Stocks
The way we approach any exciting technology is to find out who the leader is and invest in them. Leadership is usually determined by market share, and revenue growth is a great proxy for determining who is capturing the most market share at any given time. The problem with nearly all gene-editing companies is that they closely resemble drug development companies because that’s what they are. The gene-editing theme is perhaps the only one we’ve encountered where our disruptive tech investing methodology doesn’t fit so well. We need to take a different investment approach to gene editing, and we’ll start by identifying a list of all potential gene-editing stocks. For that, we’ll turn to the Kelly CRISPR & Gene Editing Technology ETF (XDNA).
We don’t invest in ETFs anymore, and even if we did, the Kelly CRISPR & Gene Editing Technology ETF wouldn’t be on our radar. That’s because we only invest in ETFs with sufficient traction in terms of assets under management (AUM). It’s a chicken and egg problem which is perhaps solved by an ETF provider having sufficient commitments prior to even launching. Coming to the market with an ETF that has $50 million in AUM is far more compelling than one that’s trying to get its first several million – like the Kelly CRISPR & Gene Editing Technology ETF which has around one million dollars in AUM right now.
Underlying every passive ETF is an index which determines which stocks to hold. We can assume index creators put a great deal of effort into canvassing available constituents, so that’s always a good starting point when looking for a complete list of names for any investing theme. The Kelly Gene Editing ETF contains 23 holdings which we’re going to vet today. Here are the top-10 constituents which make up nearly 70% of the ETF’s weighting.
|% OF NET ASSETS||NAME||IDENTIFIER||MARKET CAP|
|6.06%||Thermo Fisher Scientific||TMO||218,475|
Let’s start with the obvious problem here which becomes apparent when looking at market cap. Any company in the above list with a market cap over $38 billion is making their money on other things right now. Novartis and AbbVie are two of the top five pharmaceutical companies by revenue. Thermo Fisher is a large provider of life sciences equipment, and Agilent does something similar. Then there’s Allogene Therapeutics which uses TALENs gene editing for CAR-T therapy. Let’s talk about TALENs for a moment as it’s one of three broad types of gene-editing methods that have been developing over the years.
TALENs Goes Nowhere
Life sciences firm Beckman Coulter describes the primary differences between TALENs and CRISPR as follows:
Unlike CRISPR, which can introduce multiple gene mutations concurrently with a single injection, TALENs are limited to simple mutations. CRISPR transfections also have a higher efficiency, whereas TALEN editing often results in mosaicism, where a mutant allele is present only in some of their cells transfected.Credit: Beckman Coulter
When we look at firms dabbling in TALENs we don’t see much happening. One company that’s synonymous with TALENs is Cellectis, a $150 million firm we’ve looked at before that seems to be spinning wheels and burning lots of cash. Members of the Cellectis management team actually invented TALENs, and the company has all the intellectual property wrapped up, even going so far as to trademark the name “TALEN”. Seems safe to conclude that companies dabbling in TALENs are going nowhere fast, so the following names fall off our radar – Cellectis, their spinoff Calyxt which now has a $13 million market cap, and Allogene Therapeutics.
From our previous list of ten gene-editing stocks, we’re now left with five companies that all dabble in CRISPR technology. Before we get into those names, we need to consider the remaining 13 constituents in the Kelly Gene Editing ETF which are as follows.
|% OF NET ASSETS||NAME||IDENTIFIER||MARKET CAP|
Again, we find large pharmaceutical companies that provide no pure-play exposure to gene-editing technology – Bristol-Myers and Sanofi – which we can dismiss along with smaller (but still substantially large) pharmaceutical companies, Vertex Pharmaceuticals and Regeneron Pharmaceuticals. Illumina is a pick-and-shovel play on next-generation sequencing (NGS) which stands to incidentally benefit from gene editing. Biogen develops therapies for neurological diseases, while Qiagen is a provider of sample and assay technologies for molecular diagnostics that barely escaped being acquired by Thermo Fisher several years back. Twist Bioscience is a company we’re quite familiar with that dabbles in areas that could be loosely related to gene editing. It’s a compelling enough investment on its own.
Next, let’s eliminate firms working on other gene-editing technologies that are going nowhere fast. Perhaps the first gene-editing company ever is Sangamo, a firm that’s been trying to commercialize their zinc finger technology for as long as we can remember. Revenues seem to be flatlining as they consume loads of cash, and it all comes down to this. If their gene-editing technology was so great, then why hasn’t this $546 million company that’s been around for several decades managed to do anything with it? Another disappointment from earlier this year:
If investing in synthetic biology taught us anything it’s that no great things come from firms that spin their wheels over decades while pivoting from one thing to another in hopes of finally making it big. Another firm that fits that bill is former Wall Street darling Bluebird Bio which has equally daunting recent headlines after not managing to do much over their three decades of existence.
Finally, we’re left with Verve Therapeutics which is the first biotech spinout from Google Ventures that’s working on cardiovascular disease. They’re using multiple gene-editing approaches, including one called base editing, which is a good segue into our next company. Why invest in the licensee when you can invest in the licensor?
New Approaches to Gene Editing
BEAM Therapeutics has developed something called base editing which is said to solve all the problems and limitations thus far. Existing gene-editing methods like CRISPR, Zinc Finger Nucleases, ARCUS, and TAL Nucleases “lack control of the editing outcome, have low efficiency of precise gene correction, and can result in unwanted DNA modifications.” Beam Therapeutics’ base editing solves this, and we looked at their technology back when they had their IPO in late 2019 and concluded with the following:
Maybe “gene editing” is Betamax and “base editing” is VHS. Or perhaps all the gene editing and base editing methods in use today will prove to be entirely primitive when a new technology emerges.
Experts seem to think that Beam Therapeutics may have a “final solution” such that the technology can’t be improved upon much going forward. In other words, it’s fit for use as it exists today.
Now, before we finalize our short list of candidates, let’s address a few more names laying around from our Guide to Investing in Gene Editing Stocks published several years ago. Also claiming to be developing new approaches to gene editing are two firms – Homology Medicines and Precision Biosciences – both of which command miniscule market caps of $100 million and $111 million respectively.
We don’t invest in companies with a market cap of less than a billion dollars. This objective rule keeps us from dabbling in the many small companies that never end up achieving traction. One reason both these gene-editing technology firms have ended up in the death zone is because they’ve both been rejected by large pharmaceutical firms that once shined the light of hope on their respective technologies.
Homology developed their own approach to gene editing which wasn’t subject to the limitations of nuclease-based approaches like CRISPR or TALENs. In March 2018, they signed a big deal with Novartis, and then announced a $100 million IPO. Then, this news came out in March 2021:
Following a portfolio review, Novartis decided to conclude the collaboration and licensing agreement with Homology to pursue other opportunities in their pipeline.Credit: Homology Medicines
The data are promising and support advancing this program, which we now intend to do on our own as we drive toward naming a development candidate.Credit: Homology Medicines
When a $100 million drug developer chooses to go at it alone with $155 million in dry powder, that’s not a good sign. A similar story can be seen in Precision Biosciences which is trying to commercialize their ARCUS Genome Editing technology and sidled up with Gilead in September of 2018. Two years later, Gilead pulled the plug on the whole thing. Today, Lilly is the only sizable partner Precision Biosciences is working with as they move forward with numerous therapies on their own. Just how far can an $111 million company with $143 million in cash get now that capital is drying up?
Both Precision Biosciences and Homology Medicines have had large partners back out which means the industry is now suspicious that these technologies may not be viable. It’s not the kiss of death, but it’s enough to keep us from wanting to invest in either of these firms. We’ve now eliminated all the chaff and we’re left with the wheat.
A Gene-Editing Short List
With a bit of elbow grease, we’ve been able to reduce our list of 27 gene-editing stocks down to five candidates as follows.
|Beam Therapeutics||BASE EDITING||2,620|
The three gene-editing stocks we’re holding right now – CRSP, EDIT, and NTLA – make up just over 29% of this ETF’s weighting. Since this is a passive index, we can now overlay this list of names with an active manager’s selections. ARK Invest has spent a significant amount of time researching this domain, so we ought to see where they’ve placed their bets. Three of these stocks can be found in the flagship ARK Innovation ETF at the following positions:
- Position 7 – 4.56% – CRISPR Therapeutics
- Position 12 – 3.18% – Intellia Therapeutics
- Position 14 – 2.72% – Beam Therapeutics
When you’re not a subject matter expert, it helps to find someone who spends a great deal of time analyzing the space to see what they think. Tommy over at CRISPR Talk was kind enough to share his thoughts on the domain and where he sees things heading. He believes Beam Therapeutics is a leader that any gene-editing investor ought to consider holding, and that’s not the first time we’ve considered thinking outside the CRISPR box.
Drug Developers Are Risk Business
We have always shied away from investing in drug developers because there are far too many unknowns. We also don’t invest in companies that are pre-revenue. Readers were quick to point out that we’ve broken both these rules investing in gene-editing stocks, and they’re right. Another rule we’ve broken is investing in something we don’t understand, which is why we had to consult with subject matter experts to begin with. Today’s exercise has provided one useful conclusion. If we’re going to invest in leading pure-play gene-editing firms, we’ll need to break some rules.
Another rule we broke was to engage in market timing when gene-editing stocks soared incredibly high back in December 2020, something we wrote about in our piece on The Rapid Rise of Gene Editing Stocks. Around that time, we started trimming our gene-editing positions and captured enough profits to recover our entire cost basis. That means we’re now playing with the house’s money, regardless of what returns we have on paper. We’re now interested in making sure that we’ve invested in the companies that make the most sense. In our next article, we’ll vet all five CRISPR companies out there to see which ones we ought to be holding based on their current prospects and progress to date.
Investing in the first three gene-editing stocks to go public was a spray-and-pray approach we took when even the subject matter experts couldn’t decide who would come out ahead. In the absence of revenue growth, we need to look at pipeline progress to measure how these companies are progressing. Prior to doing that, we need to examine all gene-editing stocks out there to make sure we’re considering all possible opportunities. Today, we’ve been able to refine our original list of 27 gene-editing stocks down to five we’ll take a closer look at. Stay tuned.
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BEAM may be a bargain, taking into account the deal with Pfizer in January.
We’ll look to do an updated piece on Beam. We’re always only one black swan away from some real bargains in tech.
BEAM and NTLA have the most interesting tech. Unfortunately BEAM is still being run by a very green founder team that have bitten off far more than they can chew. Execution has been poor and they’ve let their lead in base editing slip because of it…now NTLA also has access to its own base editor in addition to everything else it can do with its Cas9. Good call on touching base with Tommy, the man tells it as it is.
Sounds like Ginkgo Bioworks 😉 If green founders really want to scale, they should step aside for more tenured C-level types to lead the charge. We don’t know much about NTLA’s base editing capabilities but thank you for that heads up. Guess we’ll need to ask Tommy 🙂 He’s all over it.
Great read. Thank you.
You are quite welcome Eric. Glad you enjoyed it! These population reduction exercises are always fun to do because they paint a good picture of the industry’s overall progress.