Human DNA sequence
Investing in technology-driven fields is risky, especially when everyone touts them as the Next Big Thing. Sure, it’s easy to see quick gains, but you’re just as likely to see those gains vanish as the next-generation technology sneaks in and replaces it — the disruptor becomes the disrupted, so to speak.
Perhaps the fastest evolving technology right now isn’t computer tech, but rather is found in DNA sequencing. We’ve gone from sequencing the first genome for about $2.7 billion in the Human Genome Project just a few years ago and rather quickly come down to $50,000 apiece. Next stop: the $1,000 genome.
This week an article in Nature Biotechnology documented the use of a Helicos BioSciences’ system to sequence the genome of one of its scientific founders at a cost of under $50,000 — excluding the cost of the $1 million machine, of course.
In June, rival Illumina (Nasdaq: ILMN) announced that it was launching a service to sequence genomes of rich people — let’s face it, they’re the only ones who can afford it at this point — for about the same cost, so the price isn’t what’s exciting. What should have makers of second-generation sequencers — Illumina, Roche and Life Technologies (Nasdaq: LIFE) — a little worried is that Helicos’ system allows for sequencing of a single DNA molecule. Removing the amplification step to generate many copies of the DNA molecule should speed up the process and theoretically make it less costly.
Don’t go running out to buy shares in Helicos just yet, though. There’s a reason the company trades at a market cap well below $100 million. Two private companies, Oxford Nanopore and Pacific BioSciences, are developing machines that can sequence much longer single molecules, which should speed up sequencing and bring down the cost.
Being private companies without disclosure issues, the businesses can operate somewhat in stealth mode, which makes it hard for investors to determine exactly who will win this battle. To keep from getting disrupted, Illumina has partnered with Oxford Nanopore to market its next-next-generation sequencer once it’s available for commercial use, so it may be positioned well if Oxford Nanopore’s technology turns out to work well.
Is it nothing more than a head fake?
So calling the above the Next Big Thing is a bit of a mistake, mostly because we, as outside investors, don’t have any real way to benefit (except, possibly, with Illumina). Rather than trying to figure out which company’s technology will eventually prevail, investors might be better off looking at companies working on making the overload of information from sequencing thousands of genes more useful for patients: deCODE Genetics, Knome, Navigenics, and 23andMe.
Unfortunately, they’re all private companies, with the exception of deCODE Genetics. And that one is a penny stock selling off assets to stay alive. You can get a piece of 23andMe by buying shares in one of its investors, Google (Nasdaq: GOOG), although that’s a fairly convoluted way to get in on the action. Keep them in mind for the future, though, if they ever go public. Presenting DNA sequence data in an understandable fashion is something customers are going to be willing to pay for. Fool co-founders Tom and David Gardner used 23andMe’s service, which eventually led David to recommend Illumina to Stock Advisor newsletter subscribers.
The real beneficiaries of the Next Big Thing
So if the winner of the sequencer war is still up in the air (or they’re all doomed to a low-margin death) and genome-information companies are all private, how can investors profit from this Next Big Thing? I think the real winners from low-priced sequencing will be drug developers.
Consider: Much of the low-hanging fruit for treating diseases has already been picked. To take drug-development to the next level, drugmakers need to know how genetic differences in patients affect the usefulness of their drugs. For instance, mutations in a gene called K-ras affect whether Amgen’s (Nasdaq: AMGN) Vectibix or Bristol-Myers Squibb’s (NYSE: BMY) and Eli Lilly’s (NYSE: LLY) Erbitux helps cancer patients or not. Knowing that ahead of time? Priceless, both to the patient and the company.
By avoiding patients a drug can’t help, drugs will become more efficient, on average, which should make everyone happy. However, a widespread personalized approach to medicine will only be possible when DNA sequencing become cheap enough. We seem to be on the road, but it will still take a while to develop drugs to take advantage of this new knowledge. So this is a long-term play for sure.
The genome craze in the early part of this decade didn’t live up to its hype — just take a look at a 10-year chart of Human Genome Sciences (Nasdaq: HGSI) to see what I mean. I truly think it’s different this time. But figuring out the best place to put your dollars to work requires more than jumping in on the obvious.
Via The Motley Fool