BiQ: Some Thoughts on Prime Medicine, the Importance of De-risking, and the BiQAP (PRME)

There was an interesting discussion about Prime Medicine (PRME) in chat today, so I thought I'd share some of the highlights with members who haven't had a chance to join BiQ Chat.

PRME is up by around 5x since I entered back in May. (I actually sold a lot of puts as well, so my ACB, or adjusted cost basis, is now below $0). I knew at the time that the shares were too cheap, given the potential of their technology, but I'll admit I had no idea that shares would run this fast and this far. With an EV now over $1B, I think shares are more than fully priced for a company with no revenue, no late-stage assets, and no partnerships.

A question arose as to why I never added PRME to the BiQAP, given my high conviction in the name. The answer is simple. The BiQAP is oriented towards names that have objective derisking factors, such as highly derisked commercial assets, growing revenue (or upcoming, near-term revenue), late-stage assets with robust data sets, or strong partnerships--and where the valuation is attractive enough for a low-risk entry. As the valuation increases, I will often exit my position and wait for the valuation to become more attractive before re-entering. This is why I publish Buy and Strong Buy targets for each name in the BiQAP. My viewpoint is always long-term. I don't try to trade on momentum or catch the next wave; I prefer to look further down the horizon. As such, I can't always predict when the market will re-rate a company, but I like to feel the odds are heavily in my favor over the long term.

PRME, however, lacked several of the most important derisking factors I look for in a BiQAP stock, except for a very low valuation, excellent science, and tremendous potential. That's not enough for me to qualify a company for the BiQAP. For entry into the BiQAP, I require tangible, objective de-risking factors that enable me to feel comfortable introducing the name to BiQ members —and confidently stand behind the stock as long as the thesis remains on track, even if the share price doesn't. For my more speculative names, however, I try to mention them in BiQ Chat when possible and share my thoughts about why I like them. As such, I mentioned PRME (along with many other names I like) several times in chat, including when I first entered back in May.

I was also asked if I planned to exit my position in PRME, since I consider the stock fully valued. The answer is no, I plan to hold long-term, even if there is volatility, which there surely will be. The reason is that I consider PRME to have tremendous long-term potential based on its science. If its prime editing technology works out, which I believe it will, and the company plays its cards right, I can see it eclipsing a company like CRSP in a few years. Of course, PRME has a long way to go, but I didn't enter to make a fast profit, although I admit it's gratifying to see the market re-rate the stock so quickly. I entered for the long-term potential, and so far, I believe the thesis remains on track.

It's very, very hard to accurately predict when a big move will happen in a small-cap bio stock, and most of the time, it happens when you're not expecting it. I'd rather hold a stock like PRME through any volatility than try to time the market perfectly. Over the long term, I have found my performance is far better when I maintain a long-term perspective than when I try to jump in-and-out at precisely the right times (you can view my performance since I launched BiQ in early 2024 by clicking here.)

That doesn't mean I won't exit a stock if I think it's truly overvalued, or if the share price has become too disconnected from reality. For example, there are two stocks in the BiQAP that I consider to be very high-quality companies, but where I recently exited due to the valuation becoming too high. I still like both companies, but the long-term potential is limited at the current valuation, and I have a pretty good idea of what they should be worth. I may not time it exactly right, but in these situations, I'd rather reallocate capital to other names where the R/R looks more favorable--and then re-enter when the valuations pull back to more attractive levels.

PRME, along with many other names in my spec portfolio, has performed very well since my entry--though, of course, there have been a few laggards as well. As these speculative companies mature and become increasingly de-risked, I continuously re-evaluate them for entry into the BiQAP, and I hope to add PRME to that group in the near future, as soon as the company provides tangible evidence of de-risking. In the meantime, I look forward to continuing to follow the company as a speculative investment and provide members with updates in chat as often as time permits.

Please refer to the BiQAP Live spreadsheet on the Active Portfolio page for additional information.

PRME share price at time of publication: $6.67

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Biotech iQ is not an investment professional, and nothing on this page or this website should be considered investment advice. Please consult with a licensed investment professional as necessary. Past performance is not indicative of future results.