Via her ARK Innovation ETF (NYSEMKT: ARKK), portfolio manager Cathie Wood makes a lot of biotech bets, often on companies that are at the cutting edge of innovation in science and technology. Businesses like that tend to have volatile and temperamental stocks, though investors are lured back time and time again because they offer the possibility of big returns in exchange for significant risks.
Does it make sense to invest in these stocks when the market is dumping them? Cathie Wood is buying the dip on two biotechs in particular, so for her, the answer to that question in this case is a “yes.” Let’s analyze whether it might make sense for you to follow her purchases, too.
1. CRISPR Therapeutics
With its shares down by 13% this year, CRISPR Therapeutics (NASDAQ: CRSP) is a certainly a candidate for buying the dip. Among her frequent purchases of it 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 across all of the related funds.
The company is a natural fit for Wood’s investing goals, which emphasize businesses pursuing technologies, strategies, or products capable of disrupting their industries and experiencing outsized growth in the process. CRISPR Therapeutics’ claim to fame is its competency as a gene-therapy developer, which, given that it just commercialized a gene therapy called Casgevy, is no longer in doubt.
Casgevy treats or functionally cures a pair of inherited blood diseases, sickle cell disease (SCD) and beta thalassemia. As it was just approved for sale for these indications in late 2023 and early 2024, it hasn’t had time to bring in any revenue yet. The biotech’s collaborator on the program, Vertex Pharmaceuticals, is taking the lead on the commercialization campaign, and thus will capture the larger share of profits.
But CRISPR Therapeutics stock could benefit significantly once sales start to roll in since earnings growth from zero will be much more impactful.
Most Wall Street analysts covering the stock don’t see any actual earnings growth happening until after 2025 at the earliest. But that just means that there’s plenty of time to buy the dip and dollar-cost average (DCA) into a sizable position to prepare for when things start to pick up.
Just be aware that this stock could be volatile in the meantime, depending on what breakthroughs (or pitfalls) the company has with the clinical-stage programs in its pipeline.
2. Intellia Therapeutics
Much as with CRISPR Therapeutics, Cathie Wood has been buying Intellia Therapeutics (NASDAQ: NTLA) throughout May, including most recently on May 30. It accounts for just under 2% of the Ark Invest portfolio, granting Wood control of 10.4% of the outstanding shares of the company.
Intellia’s shares are down by 27% this year so far, so they’re badly underperforming the market. What’s more, the company is still working on getting its first medicine out the door, so it won’t have any revenue growth anytime soon. In fact, that might take a few years, so this is a fairly risky bet to take as of right now.
Its most mature project aims to treat or cure transthyretin (ATTR) amyloidosis, a rare genetic illness. Management hopes to start a phase 3 clinical trial for the program before the end of this year. If the therapy is eventually approved, it’ll be the biotech’s ticket to access a market that GlobalData estimates could be worth as much as $11 billion by 2029.
As Intellia’s path to the market is much longer than CRISPR Therapeutics’, there’s a chance that it will run out of cash before it can commercialize a product. It currently has $953.3 million in cash, equivalents, and short-term investments, whereas its total operating expenses were $142.9 million in the first quarter.
At that rate of expenditure, it has a bit more than 1.5 years before it’ll need to raise money again. As it has zero long-term debt, aside from some capital lease liabilities, 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 with Intellia? For most investors, the answer is probably not. Biotech stocks at its stage of maturity are highly risky. And while the upside could be significant, it’s too far in the future to depend on.
On the other hand, if you have a high risk tolerance and the thought of holding onto your shares for a long time doesn’t bother you, it might be acceptable to nibble on a few shares — but only if your portfolio is diversified with safer investments first.
Should you invest $1,000 in CRISPR Therapeutics right now?
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has 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 2 Biotech Stocks. Should You? was originally published by The Motley Fool
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