Share Dilution

Beam Therapeutics: One to Watch Due to Pfizer Interest? (NASDAQ: RADIUS)

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A major consideration for early-stage biotech investors is your exit strategy. The path from the discovery of a new drug/treatment to its market launch is long and costly. There is an endless cash drain which inevitably means dilution, often at a discount if the company is not adept at raising capital. Morgan Stanley (MRS) recently review of cash requirements of 380 biotech companies with a market capitalization greater than $100 million and found that by the end of 2022, approximately one-third will need additional cash, with the total needed being $36 billion. That’s a lot of potential dilution… I’m getting better at narrowing down the outlook to those that have a good chance of benefiting from the major upside that biotech investing is seeking. Those who follow me know that I invested in Pfizer (DFP) because I think the company has benefited immensely from hitchhiking on BioNTech (BNTX) mRNA technology to become the market leader in COVID-19 vaccines with the Comirnaty vaccine. The BioNTech/Pfizer partnership has started to redefine Pfizer’s business, but it’s also been a huge success for early BioNTech investors (up 1000% in the past 3 years for savvy investors who exited at the right time).

Here I look at Beam Therapeutics (NASDAQ: RADIUS) as another biotech company that could outperform through a partnership with Pfizer.

BEAM Therapeutics Technology

Biotech companies come in many shapes and forms, one of which is companies created to exploit emerging scientific breakthroughs that have the potential to transform medicine and, along the way, deliver exceptional returns to investors. BEAM is about editing DNA in a very precise way. Beam’s slogan is “Rewrite the genetic code one letter at a time”.

Beam’s website names the main founders of the company. Beam’s technology for gene editing was developed in the labs of Beam founders Dr. David Liu and Dr. Feng Zhang of Harvard University’s Broad Institute and Massachusetts Institute of Technology, as well as Dr. J Keith Joung of Mass Gen Hospital and Harvard Medical School. . Drs. Nicole Gaudelli and Alexis Komor are the main inventors of Beam gene-editing technology, which corrects individual errors (“point mutations”) in rare genetic diseases.

Beam has identified 5 types of deleterious DNA that can be corrected with their technology. These are :

i) Genetic correction: repairing an error in a critical gene

ii) Genetic modification: changing a protein to reduce the risk of disease

iii) Gene activation: changing the sequence that controls the gene “turns on”

iv) Gene silencing: put a “stop” signal to silence a protein

v) Multiple editing: introducing more than one change

Besides the gene-editing technology, Pfizer is keen on Beam’s technology to provide the editing technology. Beam assembles 3 delivery technologies (electroporation for processing blood cells outside the body, LNP technology for delivering mRNA to the liver, and AAV (viral) technology for delivering to the eye and central nervous system) . Pfizer and BioNTech have a lot of knowledge about mRNA delivery, and their interest in Beam’s delivery technology highlights the early stage of this central aspect of gene technology.

Don’t get me wrong, BEAM’s technology is an emerging technology that could have a lot of pitfalls before it succeeds (or fails). However, Beam has its own programs that are heading towards clinical trials. So in some areas at least they go beyond the lab. Beam lists 10 of its own programs. Four of them involve gene editing of blood cells outside the body and one of these programs will enter a phase 1 trial this year. Note that the six beams live programs (body modification) are all at a very early stage of development.

Why Pfizer is interested

Pfizer has a significant interest in gene therapy, so it’s no surprise that Beam’s precise gene-editing technology caught their eye. Earlier this year, Pfizer outlined its mRNA technology roadmap, and rare genetic diseases are an important part of a 4-component roadmap. The interesting point for investors is that one of the largest pharmaceutical companies has decided to invest $300 million to accelerate and hopefully de-risk the emerging Beam technology as an essential part of its approach to gene therapy based on mRNA technology.

The Pfizer Agreement

Pfizer and Beam Therapeutics have announced a 4-year partnership (with possible extension for 5and year) at the beginning of January. Other than a brief increase, the announcement did not move the needle on Beam’s share price decline, which is down 38.5% year on year. No doubt the market decided that, since the announcement did not announce an immediate commercial result, the company continued to be unworthy of attention.

The case is interesting for the reasons I mention in the introduction to this article. Beam receives an upfront payment of $300 million (that’s a lot of money) and they’re eligible for further milestone payments of up to $1.05 billion if Pfizer exercises an opt-in license for the 3 programs. Beam is entitled to receive worldwide net sales royalties for all three programs.

Beam has the option of opting for a global co-development agreement and a co-commercialization agreement for any of the three joint programs. The money received by Beam is intended to dramatically accelerate R&D for treatments to correct specific rare genetic diseases. The partnership involves Beam contributing its skills and expertise in gene editing and gene delivery technologies for mRNA using LNPs (Lipid NanoParticles), while drug development and commercialization skills from Pfizer will bring discoveries to market faster. Curiously, Pfizer’s skills in mRNA and LNP delivery are also mentioned. I wonder if/how Pfizer’s partnership with BioNTech might become relevant in this program if gene-editing technology proves practical.

Three target areas of rare genetic diseases are mentioned: liver, muscle and central nervous system diseases. The precise targets are not disclosed, but these are new targets for Beam, not counting the diseases Beam is currently working on. Pfizer has the option to take over the development of each of the three target programs, after which it will be responsible for all development activities, regulatory approvals and commercialization. Upon completion of Phase 1/2 studies, Beam may elect to pay an option exercise fee on a program and enter into an overall co-development and co-commercialization agreement, with Pfizer/Beam’s share of net profits as well as development and marketing costs in a 65%/35% ratio. This gives Beam an advantage if any of the three programs become partially derisked.

Beam’s gene technology involves very precise editing of single bases, which avoids the double-strand breaks in DNA that gene technology commonly involves. It’s about as surgical as it gets with gene editing, but it’s important for investors to know that it’s at a very early stage, so there’s a lot of technological risk involved.

Viewpoints from analysts and main shareholders of BEAM

It’s no surprise that Cathie Wood’s ARK, with a keen interest in DNA technology and the genomic revolution, is BEAM’s largest shareholder, with 11.7% held in ARK Investment Management LLC and 9.2% additional assets held in ARK Innovation ETF (ARKK). Vanguard has a significant 12.9% stake through 6.7% held by The Vanguard Group Inc. and an additional 6.2% spread across four Vanguard mutual funds. BlackRock (BLK) fund advisors hold 5.3%. These are big, sophisticated players worth paying attention to, but it’s worth remembering that Beam’s technology is unproven at this point.

Professional advisors are enthusiastic about BEAM with 9 out of 12 Wall Street advisors over the past 90 days giving a strong buy rating, and only 3 with a hold rating. Seeking Alpha coverage is minimal with only 1 holding rating in the last 90 days.


Investing in biotechnology is always difficult because there are so many variables in the technology itself, and the cost of developing new treatments is not low. There is an emerging theme of large companies acknowledging that more focused smaller companies do better when it comes to technological innovation. It used to be that big business would drip feed the emerging business and, if the technology looked good, acquire it later. This has often led to uncertainty for the small business and ongoing cash flow crises. Recently, Pfizer and Nestlé (OTCPK:NSRGY) changed the paradigm by significantly eliminating the cash flow problem, encouraging the innovator to move fast by not being constrained by cash. It worked for the BioNTech/Pfizer COVID vaccine partnership, and I indicated that I think it will likely work for Nestlé through their investment in Seres Therapeutics microbiome technology (MCRB). There seems to be a good chance that Seres’ SER-109 C.difficile treatment/prevention will get FDA approval soon. Investors might revisit my thoughts on the MCRB as, although it is currently in the doldrums, a potential upside could come later this year.

The partnership with Beam Therapeutics highlights another aspect of Pfizer’s ambitions in mRNA technology. In Beam’s case, the focus is not on vaccines, but rather on gene therapy. This is an area of ​​biotechnology that has been the subject of much hype and which, at this point, provides more hints of a transformational future than solid results. What I mean here is that the highly targeted gene therapy used by Beam Therapeutics still has a long way to go, but Pfizer has removed a critical variable by providing the company with the money to not worry about this essential part of biotechnological innovation. Of course, Beam should be aware of its 10 internal programs. Pfizer’s due diligence gives the investor some confidence that this isn’t “snake oil,” but there’s still a long way to go. My takeaway is that Beam is worth watching to see how it develops, noting that if/when the technology becomes more concrete, the stock price rally could make investors very happy. With Pfizer as a partner in a particular niche application, investors can be sure that if it becomes a reality, one of the best go-to-marketers in the industry will drive success. With Beam’s stock price having fallen 28.2% in the past month, perhaps it’s worth considering if this is an opportunity?

I’m not a financial adviser, but I understand the biotech industry. I hope my perspective helps you and your financial advisor think about investing on the risky end of biotechnology.