This stock currently has a good balance of risk and potential rewards.
With its shares skyrocketing by upwards of 74% on Oct. 16, Wave Life Sciences (WVE -1.08%) is now on the map of many investors. Per an update from one of its early-stage clinical trials, it just marked a first-in-humans scientific milestone. That cleared the way for its stock to continue gaining value as the biotech builds on its preliminary results.
So what exactly did this company accomplish, and how important is it going to be in the long run for investors who buy it today? Let’s get down to the details.
Early results indicate that the pipeline has some real value
Wave’s mandate is to develop genetic medicines to treat rare inherited diseases like alpha-1 antitrypsin deficiency (AATD) and Duchenne muscular dystrophy (DMD).
Its AATD program, known as WVE-006, is currently in a combined phase 1b/2a clinical trial. AATD causes patients to produce a flawed version of the AAT protein. Producing sufficient quantities of the normal version is necessary for good lung health, and a buildup of the incorrect version is associated with poor liver health.
Wave’s candidate seeks to correct the problem by fixing many of the copies of the genetic manufacturing instructions (the RNA) for that protein right before they’re implemented by cellular machinery. It doesn’t alter the patient’s genome either temporarily or permanently, making it less risky from a safety perspective.
According to the latest information released by the company, WVE-006 is now a working proof of concept rather than a wholly speculative intervention. Two patients who were treated with WVE-006 in the clinical trial were found to have the correct version of AAT in 60% of the total copies of the protein they produced, even as long as 57 days after treatment.
The company claims that a proportion of just 50% would considerably lower the risks of at least some complications of uncontrolled AATD. There were no serious adverse events stemming from treatment, so its side effects appear to be tolerable so far.
Wave’s candidate appears to be accomplishing what it set out to do, and that’s quite bullish for the stock. Now, there are fewer major points of uncertainty for those considering an investment, and it’s even possible to imagine the program eventually being approved for sale.
Proceed with caution
Wave’s data update is certainly positive, and there aren’t any points worth nitpicking. However, it’s important to remember that this is still a pre-revenue biotech stock.
The company has $154 million in cash, equivalents, and short-term investments as of the second quarter, and on Oct. 1 it completed a share offering with gross proceeds of $230 million, so in total it has around $384 million in cash. Trailing-12-month operating expenses are $194 million, which includes research and development (R&D) expenditures.
But as the AATD program and other clinical-stage programs proceed through their remaining clinical trials, those costs will balloon. In other words, there’s a very high chance that Wave will need to raise additional capital within the next 24 months. When it does, it will probably prefer to issue more shares of stock, assuming it can’t get one of its collaborators, like GSK, to fund further efforts.
People who buy the stock today are thus exposed to a high risk of their shares getting diluted. That’s in addition to the standard set of biotech stock risks, including a substantial chance of Wave’s clinical trials failing to deliver good data. It will be years before this company can commercialize any therapy, if it ever does.
Nonetheless, there is still plenty of potential upside with this stock, and the balance of risk to reward is moderately in the favor of investors who have sufficiently high risk tolerance to dabble in biotech. If you were looking for a sign to buy Wave, this is it.