From June 21 to July 7, growth-stock portfolio manager Cathie Wood bought shares of Verve Therapeutics (VERV -4.44%) a total of seven times, building up the position held in her ARK Innovation ETF. The biotech now accounts for just over 0.5% of her portfolio, and her company owns nearly 3.6% of its outstanding shares.
But I'm not going to follow in her footsteps and buy the stock, and you might want to avoid it too. Here's why.
A risky biotech play with lofty goals
The biggest reason not to buy Verve Therapeutics is that it's a pre-revenue biotech stock that won't have the chance to commercialize any therapy for at least a number of years.
It only has one early-stage pipeline program in clinical trials, a gene-editing therapy called Verve-101 for heterozygous familial hypercholesterolemia (HeFH), a rare hereditary and severe cardiovascular disease that's thought to affect around 3 million people in the U.S. and E.U. The idea is that the biotech's gene-editing platform will turn off the dysfunctional copies of patients' genes, thereby potentially curing them of the inherited condition.
From a scientific perspective, Verve's gene-editing platform is quite sophisticated even in comparison to other businesses pursuing similar technologies. But the therapy's complexity might not necessarily be a purely good thing from the perspective of an investor, as each complication is another element about which regulators will want total clarity.
And because of how early stage the program is, not to mention its ambitious gene-editing approach, it would be a mistake to assume that its chances of success are even as favorable as a coin toss. In fact, it's already having a few challenges with regulators at the Food and Drug Administration (FDA). While the phase 1 trial for Verve-101 is ongoing in the U.K. and New Zealand, the FDA blocked its attempt to start a parallel trial in the U.S. until the company provided more information to address its safety concerns.
That's to be expected given that Verve-101 is using an unproven and novel gene-editing system, and it isn't a deal-breaker in and of itself. Still, it serves as a very early warning to potential investors that Verve will face significant scrutiny at more or less every step of the way in its attempts to bring any of its medicines to the market. Regulatory pauses and other delays should be expected as should a protracted development timeline.
In terms of its financial resources, the company had $508.7 million in cash and equivalents as of the first quarter. Management thinks it has enough cash to continue operating through at least the start of 2026, which is reasonable considering in 2022 its operating expenses were $167.6 million. Per the terms of a drug-development collaboration it recently forged with Eli Lilly, it could also earn at least $465 million in research and development (R&D) milestone payments.
However, it's developing Verve-101 in conjunction with Beam Therapeutics, which means that it won't capture 100% of the benefit of the Verve-101 program's commercialization (and costs), presuming it ever happens. So it probably won't be going out of business in the near term. But that isn't a good reason to buy it.
There's no rush to buy it
Most of my objections to investing in Verve Therapeutics so far have centered on its highly risky nature, which is exacerbated by the fact that there won't be much in the way of de-risking over the coming years. Taking on such a risk by buying the stock could still be appealing to some investors who are chasing big returns.
Verve-101 should report preliminary safety data sometime in the second half of this year. Phase 1 data seldom make a big splash in share prices if they're positive. Nonetheless, decent early-stage data are a prerequisite for advancing through the clinical trial process, and later stages tend to have bigger impacts. If it can actually prove that Verve-101 is safe and effective, toward the end of the decade, it could potentially commercialize the medicine, generating revenue for the first time. That would make for big gains for the people who invest in it now.
There isn't enough information to say that such a favorable outcome is likely to happen, however. And since I've allocated all of the funds I'm willing to allocate to risky biotech plays for this quarter, there's not much to drive me to buy shares. It's possible that'll change in the future, but for now, I suggest waiting a couple of years to see if there's a real chance of Verve's therapy succeeding.
