The pace of innovation in biotechnology is accelerating at a rapid clip. It took researchers 13 years to sequence the first full human genome. By contrast, it only took CRISPR Therapeutics(NASDAQ: CRSP) 10 years to bring their "molecular scissors" concept to market. With machine learning and artificial intelligence in the mix, biotech innovation -- especially in the area of gene editing/therapy -- is highly likely to speed up even further in the years to come. That's an exciting proposition for investors.
Gene editing could unlock billions of dollars in latent value for shareholders, as pioneers in the space race to develop one-time functional cures for scores of inherited diseases. All that being said, there will be unexpected clinical, regulatory, and commercial setbacks, and predicting the future winners in this fledgling industry is essentially a fool's game at this nascent stage. Fortunately, you don't have to pick one or two gene editing stocks. Here is a far better approach with markedly higher odds of success over the long run.
Image Source: Getty Images.
Don't take on too much risk: Play the field instead
Several publicly traded companies claim to be part of the ongoing genomic editing revolution. However, seven companies arguably stand out from the crowd.
Those companies and their core platforms are:
- Beam Therapeutics(NASDAQ: BEAM): Base editing.
- Caribou Biosciences(NASDAQ: CRBU): CRISPR hybrid RNA-DNA.
- CRISPR Therapeutics: CRISPR/Cas9.
- Editas Medicine(NASDAQ: EDIT): CRISPR/Cas9/Cas12a/Cpf1.
- Intellia Therapeutics(NASDAQ: NTLA): CRISPR/Cas9.
- Prime Medicine(NASDAQ: PRME): Prime editing.
- Verve Therapeutics(NASDAQ: VERV): Base editing.
Besides pure-play gene editors, Eli Lilly (NYSE: LLY), Regeneron Pharmaceuticals(NASDAQ: REGN), and Vertex Pharmaceuticals(NASDAQ: VRTX) have all made significant investments in the space as well.
The first challenge for investors is that there are no exchange-traded funds (ETFs) available specifically for gene editing stocks. For instance, the Cathie Wood-led ARK Genomic Revolution ETF(NYSEMKT: ARKG) owns shares of most of the companies mentioned above. However, Wood's ARKG isn't currently tilted toward gene-editing stocks. Moreover, it sports a sizable expense ratio of 0.75%. All of the currently available ETFs that provide exposure to this group have similar drawbacks.
The good news is that many brokerages allow investors to essentially build their own "mini-ETFs". Robinhood(NASDAQ: HOOD), in particular, makes this process a breeze with its stock slices option (useful for weighting) and commission-free trading. Put simply, you can own shares of all of these gene-editing companies in a manner that suits your appetite for risk and long-term goals, without having to pay fees or invest in themes outside of this highly targeted approach.
What's the best weighting approach?
The answer to this question will ultimately depend on your personal goals. For me, though, I'd do something along the lines of the following:
- CRISPR Therapeutics: 20%
- Intellia Therapeutics: 20%
- Verve Therapeutics: 10%
- Beam Therapeutics: 10%
- Eli Lilly: 10%
- Regeneron Pharmaceuticals: 10%
- Vertex Pharmaceuticals: 10%
- Caribou Biosciences: 2%
- Prime Medicine: 2%
- Editas Medicine: 2%
- Cash: 4%
Why this mix? CRISPR Therapeutics and Intellia Therapeutics are both poised to be the early leaders in the space. Eli Lilly, Regeneron Pharmaceuticals, and Vertex Pharmaceuticals, on the other hand, are all mature biopharmas that can serve as a ballast for this mini-fund, and offer upside potential in the event their gene-editing investments bear fruit.
Beam Therapeutics and Verve Therapeutics, for their part, are intriguing options for the next generation of this tech. Although Beam and Verve Therapeutics may eventually surpass their rivals in some respects, it's probably wise to own a smaller fraction of these companies right now.
Lastly, Caribou Biosciences, Prime Medicine, and Editas Medicine are all worth owning as a hedge against the highly uncertain nature of the field's long-term future. As the field evolves and the big winners become more readily apparent, you can always shuffle these weightings to maximize future returns and lower your risk profile.
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George Budwell has positions in CRISPR Therapeutics and Caribou Biosciences. The Motley Fool has positions in and recommends Beam Therapeutics, CRISPR Therapeutics, Caribou Biosciences, Editas Medicine, Intellia Therapeutics, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
