Portfolio Manager Cathie Wood’s Ark Innovation ETF (NYSEMKT: ARKK) In August and early September, she bought a few biotech stocks, and it wasn’t the first time they caught her attention. Her style is to invest in growth companies that pursue disruptive innovation within their sector. So while both are undoubtedly risky, there’s reason to believe that these two companies have a decent chance of success.
Here’s what she bought and why you might want to buy them too.
1. Intellia Therapies
Intellia Therapeutica (NASDAQ: NTLA) is a gene-editing biotech stock, of which Ark Investment Management owns about 0.2%. Intellia’s goal is to treat or cure inherited rare diseases by directly editing the dysfunctional genes responsible for causing each disease. This fits perfectly with Cathie Wood’s investment perspective. Powerful gene-editing technologies are practically the definition of disruptive innovation because if they work, they would negate the need for traditional interventions that only control disease.
Intellia’s pipeline is largely in its early stages. However, it does have a late-stage gene editing program for transthyretin (ATTR) amyloidosis, which should enter phase 3 clinical trials in the coming months. It also has a mid-stage program in hereditary angioedema (HAE), which should report data from its phase 2 clinical trial sometime before the end of this year; that could provide a significant benefit to shareholders if the data looks good. Both programs aim to provide the convenience of a single dose that permanently reduces the burden of the patient’s disease. So commercializing both programs will represent a major scientific achievement that will likely push the stock higher.
Financially, this biotech is in fairly good shape. At the end of the second quarter, the company reported roughly $940 million in cash, equivalents and short-term investments, while research and development (R&D) expenditures for the trailing twelve months were nearly $449 million. Management calculates that at current spending rates it has enough cash to last until the end of 2026.
The main risk of buying Intellia’s stock now – and it’s a big one – is that its ambitious gene-editing programs could run aground on scientific or regulatory hurdles, causing much of its value to immediately evaporate. The company is deep in uncharted territory, and it’s unclear whether Food and Drug Administration (FDA) regulators will be satisfied with the standard of evidence it can produce, not to mention the uncertainty as to whether its therapies can actually work based on his own therapies. standards.
Another potential problem is that if Intellia succeeds in developing curative gene-editing therapies, it could one day cure itself of having no more patients to sell them to. But that’s a distant concern for now.
If you can accept these risks without hesitation, Intellia Therapeutics is a valuable biotech to add to your portfolio.
2. Recursion drugs
Cathie Wood’s portfolio holds just under 0.1% of the shares Recursion pharmaceutical products (NASDAQ: RXRX) shares, but it is not the same type of biotech as Intellia. Although Recursion has a pipeline of five therapies in clinical trials for the treatment of rare diseases such as cerebral cavernous malformations (CCMs), the thing that likely attracts Cathie Wood is the biotech’s commitment to using artificial intelligence (AI) in the drug development process.
In that regard, the angle for investors is that Recursion is currently the largest and most advanced AI-focused drug developer. And soon it’s going to get even bigger: it’s merging with another AI drug developer, biotech, Exscientiain a transaction expected to close in early 2025.
The merged company, which will retain the Recursion name, will have a cash runway through all of 2026, a much larger oncology pipeline and the potential for up to $200 million in collaboration milestone payments over the next two years. In addition, the two companies have a combined stack of approximately $850 million in cash, equivalents and short-term investments as of the second quarter, and the new entity is expected to realize approximately $100 million in efficiencies after the transaction closes.
More importantly, the new company will be exposed to as many as ten clinical data readouts over the next year and a half, each of which will be a catalyst for the stock price. Of course, these catalysts are not guaranteed to be positive, so there is high risk for investors. Furthermore, using AI to develop more effective drugs has not proven valuable – at least not yet. There is a risk that using AI could actually drive up costs without any benefits, contrary to Recursion’s expectations and claims.
But it’s worth betting on Recursion Pharmaceuticals even before it reaches leading status in AI biotechnology. Following the combination with Exscientia, the roster of employees will consist of a ‘who’s who’ of international biopharmaceutical heavyweights, including players such as Merck, RocheAnd Sanofias well as the leading AI chip maker, Nvidia.
If those companies thought Recursion was worth working with, they probably weren’t kidding. So you can follow in their footsteps and buy some shares, if you’re comfortable with the idea that the shares may lose some value before they have a chance to grow.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Intellia Therapeutics, Merck, and Nvidia. The Motley Fool recommends Roche Ag. The Motley Fool has a disclosure policy.
2 Innovative Cathie Wood Stocks to Buy If You Can Stand the Risk was originally published by The Motley Fool
