Investment Overview – Beam’s Valuation Declines As Initial Promise Fades
When I last covered Beam Therapeutics Inc. (NASDAQ:BEAM) for Seeking Alpha over 2 years ago, back in August 2021, I gave the company a “buy” recommendation, based on the promise of its “base editing” technology. I wrote:
If traditional CRISPR technologies act like scissors, the theory goes, cutting the genome, then base editing is more like using a pencil to erase a single letter, or “point mutation” – one of the four bases found in DNA which are adenine (“A”), cytosine (“C”), guanine (“G”), or thymine (“T”) – and rewriting a different letter in its place.
The technique may be used to overcome many of the limitations affecting the use of CRISPR, Beam’s management believes, which include the unpredictability of the repairing of cuts made by CRISPR – so-called “Non-homologous end joining (“NHEJ”), toxicities associated with double-stranded breaks e.g., cell disruption or death, the delivery and positioning or a replacement DNA template, and the inability to correct genes in non-dividing cells.
Who wouldn’t prefer the relative safety and precision of a pencil, over the sharp edges and permanence of scissors? The reality, however, is that these metaphors don’t paint an accurate picture of the relative strengths and weaknesses of CRISPR/ Cas9 gene editing, as developed by, e.g., CRISPR Therapeutics AG (CRSP), versus Beam’s base editing approach.
Although, in my defense, Beam shares – which were trading 400% higher than their IPO price at the time of my bullish note – clung on to most of their value for another 12 months, they have now slipped to $22 per share, up just 30% from their IPO price of $17. The reason for the decline in valuation is primarily, in my opinion, related to its slow progress in identifying candidates and moving them into the clinic. The company’s lead program, which targets Sickle Cell Disease, is a prime example.
Beam Set To Lose Sickle Cell Development Race – By Several Years
Beam, which achieved a >$7bn market cap valuation in 2021 despite having no clinical stage assets, has made slow progress since IPO, with only 2 assets making it into the clinic to date, although Investigational New Drug (“IND”) enabling studies (an IND approval is required before in-human clinical studies can begin) have begun in relation to 2 further assets, indicated for Alpha-1 Antitrypsin Deficiency, and Glycogen Storage Disease respectively. We will come to them later.
Contrast that progress with CRISPR Therapeutics, whose supposedly inferior technology (despite its scientific co-founder being the recipient of a Nobel Prize for Chemistry) has led the company to the point of a historic first approval for an ex vivo, CRISPR/Cas9 cell therapy, indicating for Sickle Cell Disease (“SCD”), and transfusion-dependent beta thalassemia.
As I discussed last week, CRISPR Therapeutics’ SCD candidate Exa-Cel was the subject of an FDA Advisory Committee meeting at the end of October. A panel of experts discussed whether the company and its partner Vertex Pharmaceuticals Incorporated (VRTX), the Boston-based Pharma giant, had conducted sufficient safety analysis in relation to Exa-Cel, which had “functionally” cured 16 of 17 patients in a pivotal Phase 3 study. Although we will have to wait until December 6th to discover if the FDA will approve Exa-Cel for commercial use, the consensus amongst the panel appeared to be that Exa-Cel’s safety profile was satisfactory.
Beam has its own SCD candidate in development, BEAM-101, which has a similar mechanism of action (“MoA”) to Exa-Cel, using an ex vivo approach that involves harvesting a patient’s stem cells, engineering them in a lab to express the fetal hemoglobin (HbF) gene, which helps prevent the misfolding blood cells that cause extremely painful, occasionally life-threatening vaso-occlusive crises in SCD patients, and then re-infusing them back into the patient.
Beam said (in a recent investor presentation) that “preclinically, base editing leads to more consistent HbF expression compared with Cas9 nuclease approaches,” and the company has initiated a Phase 1/2 clinical study, BEACON, of BEAM-101 in SCD patients, with a planned enrolment target of 45 patients, and with initial data promised in 2024.
That means that by the time Beam presents its first clinical data for BEAM-101, Exa-Cel may have already completed its commercial launch. The initial target patient population for CRISPR Therapeutics / Vertex is ~30k patients, and with a mooted list price of ~$2m per course of therapy, the potential addressable market runs to ~$60bn, in theory at least.
CRISPR Therapeutics / Vertex first announced its pivotal study in 1H22, meaning it will likely take almost 2 years between the first pivotal study data and a commercial launch, provided approval is granted. Beam has only just begun conducting the trial that precedes a pivotal study, so we can likely conclude it is 3-4 years, at least, away from launching a SCD therapy commercially, whilst still having to prove that its therapy can be effective and safe – hurdles that CRISPR Therapeutics / Vertex have already overcome.
Beam Sells Stake In Verve Therapeutics’ In Vivo Candidates To Pharma Giant Lilly
In 2020, 2021, and 2022, Beam recorded net losses of $(195m), $(371m), and $(260m), and to date the company has racked up an accumulated deficit of >$1.3bn. Announcing Q3 earnings this week, the company revealed a cash position of $1bn, so there are no immediate financial concerns at least. On the last day of October, however, Beam issued a press release announcing:
Eli Lilly and Company (LLY) has agreed to acquire certain rights under Beam’s amended collaboration and license agreement with Verve Therapeutics, Inc. (VERV), including Beam’s opt-in rights to co-develop and co-commercialize Verve’s base editing programs for cardiovascular disease, which includes programs targeting PCSK9, ANGPTL3 and an undisclosed liver-mediated, cardiovascular target.
Based in Massachusetts – like Beam, CRISPR Therapeutics, and Vertex – Verve IPO’d in June 2021, raising ~$307m via the issuance of 16.1m shares priced at $19 per share. The company’s lead product candidate is VERVE-101, which is “designed to permanently turn off the PCSK9 gene in the liver.” This candidate, according to Verve’s latest 10-Q submission / quarterly report:
“utilizes Lipid Nanoparticle (“LNP”)-mediated delivery to target the liver, and base editing technology to make a single base change at a specific site in the PCSK9 gene in order to disrupt PCSK9 protein production.”
In short, Verve’s use of lipid nanoparticles (“LNPs”) – the fatty delivery devices used so effectively in the messenger-RNA based COVID vaccines developed by Pfizer Inc. (PFE) / BioNTech SE (BNTX) and Moderna, Inc. (MRNA) – plus base editing closely matches Beam’s own approach, but Beam has opted to waive its rights to these promising candidates in exchange for a $250m upfront payment, plus up to $350m in additional milestone payments. According to a Verve press release:
For the PCSK9 and ANGPTL3 product candidates, Lilly now holds the product rights previously held by Beam, including the right to opt-in to share 33% of worldwide development expenses and to jointly commercialize and share profits and expenses related to commercialization in the United States on a 50/50 basis. Verve holds all product rights for the PCSK9 and ANGPTL3 programs outside the United States.
If I were Verve, I would be delighted with the way things have panned out, given Lilly is the world’s most valuable Pharmaceutical company, with a knack for developing breakthrough drug candidates, such as newly approved Zepbound, the “miracle” weight loss drug that may go on to become an all-time best selling prescription drug. Lilly has the Midas touch at present, and a depth of R&D resources that Beam cannot match.
It’s important to note that Verve’s candidates are in vivo assets. To date, no in vivo gene therapy has ever been approved, but the advantages over an ex vivo therapy are obvious – no painful preconditioning regimes so that patients’ cells can be extracted, not waiting for cells to be engineered to be in a lab, and no danger of a patient’s immune system rejecting engineered cells when re-infused.
The tricky part about in vivo technology is delivery – essentially, how to protect the payload from being degraded by the immune system, and how to guide the payload to the target cell. The value of a successful in vivo drug is underlined by the fact that, back in 2021, when Intellia Therapeutics, Inc. (NTLA) revealed that its lead in vivo candidate, NTLA-2001 had reduced TTR Serum levels in six patients with the disease Transthyretin (ATTR) Amyloidosis using an intravenous injection, its share price rocketed from ~$75, to $165 overnight, valuing the company at >$13bn.
Verve’s lead candidate VERVE-101, indicated for heterozygous familial hypercholesterolemia (“HeFH”), has been subject to a clinical hold on its Phase 1 study in the U.S. since November last year, although that hold was lifted last week, with Verve pledging to open trial sites in the U.S. alongside those already open in New Zealand and the U.S.
It seems as though Lilly has arrived at precisely the right time to potentially opt-in to an in vivo study of genuine promise, plus, Verve management, announcing Q3 earnings this week, says that it is “on track to initiate Phase 1 clinical trials for VERVE-102 in the first half of 2024 and VERVE-201 in the second half of 2024”
Beam’s Own In Vivo Programs – A Source Of Promise, But Hampered By Slow Progress?
Beam does in fact have in vivo programs of its own. Both of its Antitrypsin Deficiency, and Glycogen Storage Disease drug candidates mentioned above, respectively BEAM-302, and BEAM-301, are in vivo candidates, the former focused on correction of E342K mutation, the latter on correction of R83C mutation.
Beam says it expects to make a regulatory filing for both candidates – for BEAM-302 in Q1 of 2024, and for BEAM-301 in H1 of 2024. BEAM-302 has shown the potential to increase serum AAT in mice, although once again the pace of development here might be considered an issue, given Intellia apparently achieved the same goal, in humans, over 2 years ago.
Meanwhile, the Beam-301 program “aims to restore impaired glycogen metabolism which otherwise causes significant morbidity.” The company says that animal studies “suggest 11% editing sufficient for restoring fasting glucose,” and calls early preclinical study results in the “first DC in industry with in vivo direct correction gene editing.” the 11% figure troubles me, as this doesn’t suggest a precision editing tool, rather an approach that carries all the same risks, and possibly more, than the off-target activity of e.g. exa-cel.
Concluding Thoughts – Is Beam A Slow Burner Or A Busted Flush?
Arguably, Beam IPO’d at a time in early 2020 when CRISPR gene editing and / or base editing capabilities alone were enough to command a multi-billion dollar market cap, but in the intervening years, the backlash against gene editing companies, based on high cash burn and a lack of progress in the clinic, has been hard on many companies’ valuations.
Nevertheless, Beam’s share price remains higher than its IPO price of $17, the company has ~$1.4bn of funding, sufficient to last until 2026, management believes, and a pipeline, with 2 clinical stage assets. The candidate I have not discussed in this post so far is BEAM-201, an ex vivo cell therapy that targets the protein CD7, often over-expressed on cancerous cells, and indicated for acute myeloid leukemia. A first patient was dosed in a Phase 1/2 clinical study in September this year.
In many ways, BEAM-201 mirrors its other clinical candidate, BEAM-101, in that development-wise it seems some way behind the competition. 6 cell therapies have now been approved, all treating different forms of blood cancer, so unless BEAM-201 exhibits best-in-class potential when data does finally arrive, the candidate is arguably another unnecessary drain on resources.
The crux of the investment thesis in relation to Beam has not changed since my note published in 2021, which was entitled “If You Buy Into The Technology, Buy Into The Stock.” Frankly, the as-yet unproven power of base editing seems to be more or less the only reason to back Beam to succeed today, because Beam is apparently ~3-5 years behind the curve in sickle cell disease, and equally far behind in cell therapy, whilst even its in vivo assets are only just beginning to show in preclinical studies what other companies seem to have achieved in in-human studies several years ago.
One other reason to back Beam to succeed could be its cash position, but in fact, Beam has less cash than CRISPR Therapeutics, which also has the support of its partner, Vertex, which boasts >$8bn in spare cash. Beam has additionally just forfeited the rights to two more in vivo candidates in exchange for up to $600m in cash, yet the company surely would benefit more from the assets than the money, and by doing so, it has given a potential rival in Verve Therapeutics access to the R&D resources of the world’s most valuable Pharma company, with a knack for bringing through breakthrough new drugs with unique MoAs.
In short, the management of Beam Therapeutics appears somewhat muddled at the present time, and there is furthermore an argument that it is not necessarily the way cells are edited that is holding back the gene therapy space, but the ability to deliver the editing tools to the target cells.
So far as I am aware, Beam does not own the rights to LNP technology, and because LNP technology could potentially transport a variety of gene editing technologies to target cells, from base editors, to CRISPR/Cas9, to messenger-RNA, or strands of RNA itself, or oligonucleotides, it is arguably substantially more valuable, and more irreplaceable, than the various gene editing technologies that have been developed by numerous different companies.
Beam’s current market cap is $1.82bn, and the company boasts ~$1.3bn of cash. So, in effect, we can argue that the pipeline itself has a low valuation relative to its potential, but that argument does not hold up when we consider that Beam already has an accumulated deficit of >$1.3bn, and has made a net loss of >$800m across the past 3 years. Net loss across the first 9 months of 2023 already exceeds $(275m). The cash pile is going to get smaller with each passing quarter.
For all the money spent, Beam appears to have little to show for its R&D, and with a CRISPR/Cas9 therapy on the verge of approval in SCD – and it is not the only gene therapy poised to succeed in this indication, as bluebird bio, Inc.’s (BLUE) lovo-cel could also win approval in 2023 – and an FDA Adcomm supporting its safety profile, it is unclear what the base editing value proposition is at this time. If base editing does eventually come through in the in vivo setting before any other therapy, arguably it will be Lilly and Verve, rather than Beam, that makes the breakthrough.
As such, I am struggling to get my head around Beam Therapeutics Inc.’s value proposition at the present time, and therefore, despite its stock price being worth >75% less than when I recommended it in 2021, I am giving the stock a “sell” recommendation. That is not to denigrate the valuable research work being completed by the company, rather a reflection of the fact it is unlikely to uncover a revenue-generating market opportunity for the foreseeable future.
Read the full article here