Beam Therapeutics Inc

Moat: 2/5

Understandability: 4/5

Balance Sheet Health: 4/5

Beam Therapeutics is a biotechnology company pioneering base editing for genetic medicines, focusing on therapies for rare genetic diseases.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Beam Therapeutics is a biotechnology company focused on creating precision genetic medicines using base editing technology. Unlike traditional gene editing, which cuts DNA strands, base editing modifies single base pairs in DNA, offering higher precision and potentially lower risks. The company’s focus is on in vivo base editing, meaning it delivers the gene editing therapy directly into a patient’s body.

Beam’s main technology platform is based on CRISPR gene editing that has been modified to enable precise edits. The company is primarily concerned with developing new therapies for rare genetic diseases. Specifically, Beam is developing therapies for sickle cell disease, beta-thalassemia, and other blood-related disorders.

Revenue Distribution & Trends in Industry

Beam is still a very early-stage company with no significant revenue. The company is spending a significant amount of money on R&D. Most of their collaborations are currently focused on early phases, or preclinical research, and the revenue is recognized upon reaching clinical trials and when certain criteria is met. At the moment they have no recurring sales revenue.

The industry for gene editing is very promising, but very competitive with a lot of companies spending billions on R&D. These type of therapies are at the forefront of the technological development and are expected to grow to $31.5 billion by 2031. The market is still in the early stages of life but is anticipated to become extremely big. The recent downturn in markets and investor sentiment toward unprofitable biotech companies are causing a drag on the whole industry and has made funding more difficult to obtain. As a result, companies like BEAM will focus more on optimizing their financials instead of rapid expansion.

Margins: As a pre-revenue company, Beam does not generate sales. Expenses are also related to R&D expenses as this is a very research-focused company. Given they are spending so much on R&D expenses, and are not having any revenue, their margins are negative. However, because they are in the early-stages, this is expected and not a big concern.

Competitive Landscape: The gene editing space is incredibly competitive. There are different companies that focus on different parts of the technology, and some companies have more capital and are further along in the pipeline. Some of their main competitors are:

  • Vertex: A commercial-stage biotech firm that has a drug approved, exa-cel (formerly CTX001), for the treatment of sickle cell disease and beta-thalassemia, which is a gene-editing therapy that was developed with CRISPR Technologies
  • Editas Medicine: Primarily focusing on in vivo gene editing and has some clinical data available for some treatments.
  • Intellia Therapeutics: Another company focusing on in vivo gene editing, has some clinical data, primarily focused on liver diseases, and was the first to test CRISPR directly inside the human body.
  • CRISPR Therapeutics: Developing both ex vivo and in vivo therapies, focusing on beta-thalassemia, and sickle cell, and has some of the longest-running clinical data available.

What Makes Beam Different

What makes BEAM different from its competitors is that they are primarily focused on Base Editing. The current methods involve cutting the entire strand of the DNA while BEAM is attempting to only modify a single base pair. This is expected to be more precise and less risky for a patient. BEAM is also focusing on developing the necessary technologies to be able to develop and manufacture its own therapies, and also has collaboration with other companies to expand its research. BEAM also has a very diverse portfolio of different products in different stages of research and will be able to better target a lot of diseases.

Financials in Depth BEAM Therapeutics is not currently a profitable company, as it is a pre-revenue company with a high burn rate. The company is currently spending most of its resources on the research and development of its drugs. As of December 31, 2022, they have spent $150 million on research and development, $61 million on general and administrative and $7 million on license agreement obligations. They also had income of $50.3 million during the same year as a result of their collaboration agreements. The cash flow used for operating activities was roughly -$448 million. The company has not produced any revenues due to sales but is working toward a better-looking future. They had $1.1 billion in cash, cash equivalents, and marketable securities at the end of the year. The debt is immaterial. It is a very healthy cash balance. However, the burn rate of the company may cause concern if not addressed properly. Because of the company’s R&D nature, it is hard to predict what the future will look like. In the most recent quarterly report, for September 30, 2023, the company had no revenue, an operational net loss of 99 million, and total cash and cash equivalents around 1.12 billion. They are still spending money on research and development, with research and development costs totaling $111 million for the last three months.

Moat Analysis While BEAM does have some intellectual property, which is very important for a biotech company, it is too early to tell if their technology will be a major winner. There are a lot of companies working on gene editing therapies.

Intangible Assets:

  • BEAM’s main asset is its base editing technology. However, they are not the only company pursuing gene editing therapies, and it is not clear if their methods will be more useful, more effective, and more widely adopted than competitors’ technologies. There are risks to all gene editing therapies, and all are very early in development.
  • The patent landscape for gene-editing technologies is still in flux, so it is unclear if BEAM will maintain a strong defensible position. Competition is intense.
  • While the company does have multiple intellectual property rights, such as patents for their technologies and methods, their success in the future relies heavily on their ability to bring that to production.
  • The industry also has regulatory licenses to be concerned with as the FDA may deem the products unsafe or not as effective as advertised. BEAM’s value depends highly on whether they can achieve FDA approvals.

Switching Costs:

  • In the market of genetic medicine, there is an incredible stickiness because the patient needs to rely on one provider, and it is difficult to switch from a proven successful provider to a new untested provider. However, because BEAM has no commercial product yet, there are no switching costs at the moment.
  • Although switching costs may prove to be an important moat for the company in the future, it is not applicable yet because the company has not yet commercially produced any treatments.

Network Effect:

  • Since BEAM is a biotech company, they do not have a network effect. Their success depends on how effective their therapies are, and not on the amount of people using their product. Cost Advantages:
  • BEAM has not yet demonstrated any cost advantages over their competition. The development and the manufacturing of their products is a very complex and expensive process and there are no significant advantages over their competition in this area.

Moat Rating: 2 / 5. BEAM currently lacks a significant moat, since they are an early-stage research company that is still in the process of developing therapies and going through regulatory approvals.

Risks to the Moat and Business Resilience The potential for competition from competing therapies is a major risk. Many other biotech companies are racing to develop therapies in the same fields and these new therapies are also making great progress. Other significant risks to the company are:

  • Clinical trial risks:
  • Clinical trials are never guaranteed to show favorable results. Any significant delay or a poor result from clinical trials can mean that the company is worth nothing. * Regulatory risks:
    • Because these type of technologies are new, there is an added regulatory risk because the FDA may not allow any of their products or may introduce additional requirements for them to reach the market. FDA approvals are never guaranteed and could be subject to change by the governing body, potentially damaging the profitability of these products.
      • Financial risks:
    • The company relies heavily on raising additional capital. If the company is unable to raise the capital required, it is hard to believe they will survive.
      • Technology risks:
    • The technology may be superseded by other competing technologies
      • Managerial risks:
    • The company still relies on only a few people who understand the technology. An unforeseen event could negatively affect the company.

Business Understandability Rating: 4 / 5. The business is relatively easy to understand. They focus on creating precision genetic medicines based on base editing. What is unknown is the future revenue or the probability of their products actually achieving approval and becoming successful.

Balance Sheet Health: 4 / 5. The company currently holds more than $1 billion in cash with very little debt. However, their cash burn rate is very high and their future operations are dependent on their ability to secure funding when they need to. They may also find that they need additional funding in the near future if their product approvals get delayed or if they expand their operations more aggressively.