She’s a giant of the contemporary investment scene. Her pronouncements move markets, and she has garnered millions of stock market groupies. Cathie Wood, Founder and CEO of Ark Invest, knows about razzle dazzle when it comes to high tech stocks. Her fund holds substantial stakes in some of the most sizzling biotechs on the market. There is a lot of hype for these media darlings. But are they good long term investments? Let’s take a look at a few of Cathie Wood’s top biotech holdings.
1) Iovance Biotherapeutics, Inc (IOVA)
Iovance is one of Wood’s more traditional holdings, in that they fit the model of a pre-revenue biotech company boldly challenging a difficult scientific problem with novel solutions. In this case, the problem is solid cancer tumors. The novel solution would be TIL therapy, which stands for Tumor Infiltrating Lymphocytes. The company explains TIL’s like this:
In the early stages of cancer, the immune system tries to fight cancer by mobilizing special immune cells known as lymphocytes to attack the tumor. Lymphocytes with the capacity to recognize and attack the tumor traffic to, and infiltrate into the tumor. These cells are known as tumor infiltrating lymphocytes (TIL). However, the anti-tumor effect of the TIL is usually short-lived because cancer cells adapt and employ mechanisms to evade detection by TIL, and suppress the anti-tumor immune response through the release of various anti-inflammatory factors into the local environment.
Iovance has pioneered a process to synthetically supercharge your own TIL’s and turn them into lean, mean cancer busting machines. So far, investors have seen the company’s share price supercharged. ARK Invest has bought more and more shares as the share price has increased. At this point, ARK is the company’s largest shareholder by far.
This kind of extreme concentration of ownership by a Wall Street player can lead to fears of market manipulation. Is Cathie Wood buying more shares to make them go up? Or is Cathie Wood buying more shares because she sees assets that are growing in value intrinsically, and she wants to own as much as possible of a good thing?
So far, Iovance has delivered the goods. They currently have four phase II trials in progress, and several more early stage trials in collaboration with prestigious institutions such as MD Anderson Cancer Center and Moffitt Cancer Center. In addition, the young company has already patented 20 different inventions and discoveries related to TILs. As we speak they are building a highly customized factory to produce TIL’s at volume (the proprietary TIL manufacturing process is complicated and highly personalized for each patient).
It’s still the early innings for IOVA. They are just beginning stage 2 trials now, so definitive results could still be years away. But the preliminary data is already electrifying. In a recent readout of preliminary data from a trial against metastatic melanoma (skin cancer), the novel TIL’s produced an ORR (Overall Response Rate) of 36%, with the anti cancer effect lasting for years on end. This was in a patient population that was very sick; these patients had failed on multiple lines of treatment, and the cancer had already metastasized in three different places in their body. For 36% of the patients in the study, Iovance’s new medicine bought them at least two more years of life. If IOVA can produce similar results against known killers such as Head and Neck Cancer and Lung Cancer, the shares could continue to soar.
The company is currently valued at around $7 billion. That may seem like a lot for a company that is years away from having a saleable product. But Keytruda, the cancer blockbuster that started off the immunotherapy revolution, is projected to produce $22 billion in sales in 2025 alone. Like Keytruda, Iovance’s TIL’s are aiming to treat a broad range of serious cancers. With such a huge addressable market hungering for advances in oncology treatment, IOVA shares could be a bargain at the current price.
Cathie Wood’s “look” is part of her television friendly persona. Her hallmark is her big thick glasses that you would expect from a chemistry nerd if the nerd worked in a lab in Brooklyn. It seems like Wood’s vision may be 20/20 on IOVA.
2) Intellia Therapeutics (NTLA)
Another biotech pushing science towards new horizons is Intellia Therapeutics. Intellia’s claim to fame is that one of its founders, Dr Jennifer Doudna, recently won the Nobel Prize for her pioneering work in the discovery of the CRISPR method of gene editing.
Along that line, Intellia is attempting to leverage CRISPR gene editing technology to create a wide variety of cutting edge medical cures.
The key word here is “attempting.” NTLA is an example of a very early stage biotech that has achieved outsized market capitalization and funding based on it’s celebrity founders and backers. If Iovance could be considered a “baby” of a company with several studies in phase II, then Intellia is just an oversized embryo. As of the writing of this post, NTLA has just one study entering phase I, with a few more hoping to enter phase I in late 2021.
The company’s approach certainly seems promising. They are following a two pronged strategy. On one side, they are researching “In Vivo” therapies, whereby they directly utilize CRISPR gene editing to cure rare diseases caused by simple genetic abnormalities. As the company describes “In Vivo,” in these cases, CRISPR is the therapy.
The second prong of Intellia’s efforts is in “Ex Vivo” therapies, whereby they utilize CRISPR in a lab to create medicines for more common ailments, such as AML (Acute Myeloid Leukemia). Intellia summarizes “Ex Vivo” therapy as, “CRISPR creates the therapy.”
The science seems promising, but there are a few details that could be cause for concern.
First, Intellia is a very young company. They are many years away from producing meaningful revenue, let alone profit. They are currently very well funded, having just sold $200 million worth of stock. But it’s a real leap of faith for any investor.
Second, although the company proudly touts its connection to biotech superstar Dr Doudna, she seems to have no current involvement in the company. She is not listed as a major shareholder, and she doesn’t even have a seat on the board of directors. There could be a lot of good reasons for this, but it’s enough to make an investor wonder. To put it bluntly, “Elvis has left the building.”
Lastly, ARK Invest owns an awful lot of this company, and has been selling of late. With little revenue on the horizon, there is a possibility that Cathie Wood’s star power and massive capital have an outsized influence on the share price. Since ARK started selling shares a few months ago, NTLA’s share price has begun drifting down. And this was with ARK selling less than 10% of its stake in the company. What if Cathie Wood suddenly goes cold on the company? Would you want to be left holding the bag in the event that Cathie “leaves the building?”
Intellia might not be a bad risk to take for an investor who really believes in the future of CRISPR. But it will be a long and winding road for any investor who dares to make the bet.
3) Invitae Corporation (NVTA)
Invitae is a Silicon Valley “story stock” at it’s finest. The shares have skyrocketed based on a compelling narrative and huge revenue growth. However that huge revenue growth has been accompanied by even more gigantic losses. Both the scientific data and the business rationale behind this company are fuzzy at best. The one thing that is clear is that Invitate is great at incinerating money.
NVTA is a different kind of healthcare company than the prior two we discussed. IOVA and NTLA could be considered traditional biotech companies, in that they must present a very high level of scientific proof in order to earn revenue; they plan on following traditional pathways for drug approval; data will further be scrutinized by peer reviewed medical journals and, eventually, by insurers who may pay for the medicines. Invitae has bypassed all of this pesky scientific proof by going directly to the consumer. When you go to Invitae.com, you will notice that the copy and images on the site are designed to pitch expensive genetic testing directly to consumers. Invitae talks about their various genetic panels as if the science of genetic testing were as established as the Law of Gravity. These claims are far from reality. While we are making leaps and bounds in our proven scientific knowledge around genetics, Invitae pushes the envelope right to the boundary between science and science fiction.
Invitae also has a business selling tests through licensed medical providers. Once again, if you go to Invitae.com, it will be obvious that this is not their core business. However, with some care, you can find a site that purports to be aimed at medical providers. Typically, this is where testing companies provide hard scientific data in peer reviewed journals for educated professionals to review. Not Invitae. If they do offer peer reviewed publications somewhere, they certainly make it hard to find the data. Who needs good data when you have a great story?
Whatever Invitae is doing, it’s certainly working (at least from a revenue point of view). According to a presentation delivered on January 12th, 2021 at the J.P. Morgan Healthcare Conference, revenue has grown from under $80 million in 2017 to around $300 million in 2020. A curious investor might like to know: which tests were most popular? How did that revenue break down between physicians and DTC (direct to consumer) what was the average price per test? Too bad. That information wasn’t offered.
Information that also was not offered during the J.P. Morgan presentation was that losses have grown even more quickly than revenue. According to regulatory filings, in the third quarter of 2020, NVTA brought in $68 million in revenue, but produced a net loss of $80 million. This is not an anomaly based on Covid. As NVTA has grown revenues, losses have ballooned.
In it’s most simple form, Invitae is the Uber of medical testing. Management is willfully and blatantly ignoring industry norms and ethical guidelines. The more money they burn, the higher the share price seems to go; they just raised an additional $400 million by selling stock at sky high prices. Just as Uber has burned mountains of cash for more than a decade with no clear path to profit, Invitae seems well on its way to a similar game plan. So far, it’s worked out great for shareholders, especially shareholder #1, who is Cathie Wood.
As you can probably tell, this kind of business model (or non-business model) has never appealed to me. But Silicon Valley investors have made billions this way. In this case, there are some industry specific risks you should be aware of.
Right now, we are in the “wild west” of genetic testing. Because it’s not quite a drug, and not quite a device, regulation around the technology is exceedingly weak. Thus, Invitae feels emboldened to claim almost anything with very little hard evidence presented. This can change quickly. With the Democrats now in power, we may see a much stronger wave of regulation sweep through the industry. Additionally, one never knows what kind of whistle blower can emerge with damning accusations. History shows that in the Religion of Wall Street and Silicon Valley, integrity can easily be sacrificed on the altar of never ending growth
Another big risk is the public’s attitude towards genetic testing. It’s possible that Invitae seems to have no clear path to profitability because they don’t care if they make money off the tests. They may actually be aiming to make money off the health data that they collect. Such data is becoming more and more valuable to health organizations across the world. Collecting and selling this data can be quite controversial, and could blow up in Invitae’s face at any moment.
Invitae may also face sudden privacy concerns. At this point, the media is filled with tales of unintended consequences connected to genetic testing. I personally know someone who accidentally discovered his love child through casual genetic testing. You might imagine that his established family did not love the discovery of this random love child. These kinds of concerns, multiplied times millions, are a risk for Invitae investors.
Finally, there is the risk of shareholder concentration in the form of ARK Invest. ARK is NVTA’s largest shareholder, by far. While this has been great on the way up, it can also mean that the share price would collapse overnight if Cathie Wood decides to sell. Given the ethical grey zone this company is operating in, one shareholder’s outsized influence on share price magnifies the risk.
If you love perennial money losers with ethical issues such as Uber and Doordash, this stock is for you. If not, stay away.
Cathie Wood and the Ark Invest team certainly know how to thrill investors. Her approach to the stock market could be described as “life in the fast lane.” The trick is knowing which of her stocks are speeding towards glory, and which are hurling towards a wreck. If you share Cathie’s need for speed, make sure you think through the risk and the reward before you jump in the race.