Through her ARK Innovation ETF (NYSEMKT: ARKK), portfolio manager Cathie Wood makes a lot of biotech bets, often on companies at the forefront of science and technology innovation. Such companies tend to have volatile and temperamental shares, although investors are lured back again and again because they offer the possibility of big returns in exchange for significant risks.
Does it make sense to invest in these stocks if the market dumps them? Cathie Wood is mainly buying the dip in two biotech companies, so for her the answer to that question in this case is ‘yes’. Let’s analyze whether it could make sense for you to also track her purchases.
1. CRISPR Therapies
With shares down 13% this year, CRISPR therapies (NASDAQ: CRSP) is definitely a candidate to buy the dip. Of her frequent purchases this month, Wood last bought the stock on May 30; it represents 3.6% of the Ark Invest portfolio, making it the eighth largest investment of all related funds.
The company is a natural fit with Wood’s investment goals, which emphasize companies pursuing technologies, strategies or products that can disrupt their industries and experience outsized growth in the process. CRISPR Therapeutics’ claim to fame is its competence as a gene therapy developer, which, given that it has just launched a gene therapy called Casgevy, is no longer in doubt.
Casgevy treats or functionally cures a pair of hereditary blood diseases, sickle cell disease (SCD) and beta-thalassemia. Because it was only approved for sale in these indications in late 2023 and early 2024, it hasn’t had time to generate revenue yet. The biotech employee of the program, Vertex Pharmaceuticawill take the lead in the commercialization campaign and will thus reap the majority of the profits.
But CRISPR Therapeutics stock could benefit significantly once sales start rolling in, as earnings growth from scratch will have a much bigger impact.
Most Wall Street analysts covering the stock don’t see actual earnings growth until after 2025 at the earliest. But that just means there is plenty of time for the dip and the dollar cost average (DCA) to move into a significant position so we can prepare for when things pick up again.
Keep in mind that this stock could be volatile in the meantime depending on what breakthroughs (or pitfalls) the company has with the clinical-stage programs in the pipeline.
2. Intellia Therapies
As with CRISPR Therapeutics, Cathie has purchased Wood Intellia Therapeutica (NASDAQ: NTLA) throughout May, including most recently on May 30. It accounts for just under 2% of the Ark Invest portfolio, giving Wood control of 10.4% of the company’s outstanding shares.
Shares of Intellia are down 27% so far this year, underperforming the market. Plus, the company is still working on getting its first drug out the door, so there won’t be any revenue growth anytime soon. In fact, that could take a few years, so this is a fairly risky bet at this point.
The most mature project aims to treat or cure transthyretin (ATTR) amyloidosis, a rare genetic disease. Management hopes to initiate a Phase 3 clinical trial for the program before the end of this year. If the therapy is ultimately approved, it will be the biotech’s ticket to entry into a market that could be worth as much as $11 billion by 2029, according to GlobalData.
Because Intellia’s path to market is much longer than CRISPR Therapeutics’, there’s a chance the company will run out of money before it can bring a product to market. It currently has $953.3 million in cash, equivalents and short-term investments, while total operating expenses in the first quarter were $142.9 million.
At that pace of spending, it has just over 1.5 years before it needs to raise money again. Since it has no long-term debt aside from some capital lease obligations, it shouldn’t have a problem surviving for a while beyond that horizon.
So, should you follow in Cathie Wood’s footsteps and buy the dip at Intellia? For most investors, the answer is probably no. Biotech stocks are very risky in their maturity phase. And while the benefit could be significant, it’s too far in the future to depend on it.
On the other hand, if you have a high risk tolerance and the thought of holding your stocks for a long time doesn’t bother you, it may be acceptable to nibble on a few stocks – but only if your portfolio is diversified with safer investments first.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends CRISPR Therapeutics, Intellia Therapeutics, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
Cathie Wood is buying the dip on these two biotech stocks. Would you? was originally published by The Motley Fool
