Nowhere will you find more exciting ideas to invest in than life sciences, a broad topic that encompasses around 30 different branches of study, each of which could take a lifetime to fully comprehend. As investors, we dont want to rely on subject matter experts to understand what a company does. If we cant understand a companys business, we dont want to invest in it. We also want to avoid businesses with no traction. Drug development companies with no revenues that are burning through cash trying to bring a drug to market have volatile share prices for a reason. That volatility represents uncertainty. We prefer to stick with businesses that are already selling a product or service which is generating strong revenue growth consistently. These are businesses that are leveraging life sciences technologies to achieve above-average growth.
In writing about life sciences over the past seven years, weve come across dozens of interesting life sciences companies innovating across the globe such as:
Oftentimes well find groups of startups trying to solve similar problems like creating treatments using the human microbiome or trying to cure hearing loss. Technologies like mobile health, telemedicine, and medical chatbots are democratizing access to healthcare services. Big data is helping us better treat mental health conditions while telepsychiatry now democratizes access to mental health professionals. Were now able to create bionic limbs, bionic eyes, bionic ears, bionic pancreases, and artificial hearts. Soon, we might be harvesting organs from pigs to help solve the kidney transplant problem. Robots are now performing surgeries, and it wont be long until robots are doing dental work as well. Were building labs in the cloud and organs on chips. Optogenetics lets us control cells in living tissues with light. Deep learning algorithms now discover drugs which are then administered using smart pills, smart inhalers, or even wireless drug delivery chips. Patient data is now stored using electronic medical records, data which can then be analyzed by artificial intelligence algorithms to provide things like personalized cancer treatments. When a baby is born, were able to store stem cells from cord blood and then use them for stem cell transplants later on in life. These are only the startups we know about, because many life sciences startups choose to operate in stealth mode.
Some of the problems were trying to solve are themselves emerging, such as trying to kill super bugs that stem from antibiotic resistance, or developing vaccines for new viruses like the rona. (Johnson & Johnson is pouring millions into developing a coronavirus vaccine.) Many of the problems being worked on involve cures that havent been developed yet, something we looked at in our when will there be a cure series.
Examples of innovation in life sciences abound, so weve tried to narrow it all down to six areas of focus weve been researching for investment opportunities.
Lets start with genomics.
Perhaps no field in life sciences shows more promise than that of genomics. Using genetic sequencing machines, scientists are not only able to read the recipes of life, theyre also able to edit them using technologies like gene editing. Full genome sequencing has now fallen below the $1,000 mark, and some companies now have their sites set on a $50 genome sequencing price point.
Huge databases of DNA data are now being mined for insights, and scientists are even able to reconstruct composite images of criminals form crime scenes using DNA, something referred to as DNA phenotyping.
The field of genomics is exploding as prices plummet, speeds increase, and companies continue to find new use cases. Venture capitalists are pouring money into genomics startups across the globe with China and America being seen as the current leaders in genomics. In the future, well have a world where everyone is given personalized medicine tailored to their unique genetic makeup. This is why genetic testing is becoming so popular, something well cover extensively later in this piece.
You cant talk about genomics without mentioning Illumina, a company that all but dominates the market for machines that perform gene sequencing. Weve been longtime shareholders in Illumina and added to our position back in 2016 when shares dipped to around $135 a share. As the cost of gene sequencing plummets, even more use cases are opening up for Illuminas machines leaving them plenty of room for growth. One company trying to disrupt this plan is Chinas BGI Genomics which hopes to provide an alternative for Chinese companies that dont want to use Illumina or Oxford Nanopore sequencing machines. (Oxford Nanopore is a private company that builds smaller gene sequencing devices that are less accurate.) Another publicly traded company to watch in the sequencing space is 10X Genomics which is working on single cell sequencing.
Not all genomics stocks are leaders. There are plenty of laggards, like Bionano Genomics (BNGO) which had an IPO back in 2018. The company sells instruments meant to complement next-generation sequencing machines like those sold by Illumina. Unfortunately, they couldnt grow revenues in 2019 while losses continued to increase. You cannot be in a high-growth market and not have the revenue growth to show for it.
Human longevity also referred to as life extension science involves extending the human lifespan by rolling back the effects of aging. Technologies like machine learning and genetic sequencing now mean were better able to understand the aging process. Companies like Googles Calico are analyzing millions of anonymous DNA samples in an attempt to better understand the effects of genetics on aging.Were now able to develop cellular medicines that uses live cells to repair the body.
Other companies are trying to increase the human lifespan by lengthening ones telomeres or by minimizing oxidization which causes aging. Venture capitalists are pouring money into dozens of startups tackling the aging problem in areas like regenerative medicine or young blood transfusions.
From an investors perspective, human longevity presents both risks and potential rewards as living another 20 years can have some dire effects on some peoples retirement plans. Of the top longevity companies out there, some are publicly traded. Just be aware that some companies out there are selling snake oil. Theyre preying on older people who have money and the desire to live longer. Just because someone says theyre selling anti-aging pills doesnt mean they actually work.
Weve talked before about how The Internet of Things promises to connect everything to the cloud with the byproduct being loads of big data. The same holds true in the medical industry where connected medical devices allow doctors to monitor patients vital signs from afar. Breath diagnostics devices allow us to more quickly diagnose medical conditions. Ultrasounds can now be performed with smartphones, and ultrasound technology itself is finding many other uses cases like breaking up blood clots that cause strokes. Newly developed medical devices are used to administer electroceutical therapies and wearables are helping to treat mental health.
Perhaps some of the biggest advancements are being made in medical imaging where deep learning algorithms are used to interpret medical imagery. Dozens of startups are now developing medical imaging AI algorithms to do everything from measuring breast density to preparing surgeons for surgery.
The increasing sophistication of medical devices and medical imaging algorithms mean that doctors are more easily able to treat patients from afar. Companies like Teladoc (TDOC) make it possible for anyone with $40 to speak with a doctor. For retail investors looking to invest in the telemedicine trend, Teladoc is probably the only telehealth stock to own. There are also many startups working on telehealth using technologies like machine learning to improve upon their offerings.
As we continue to develop more connected medical devices and generate more medical images, the amount of big data to analyze in healthcare is growing exponentially. Many data analytics businesses are emerging which use this data for predictive analytics or to identify inefficiencies in processes. The ability to remotely monitor patients means were able to treat more people, more effectively.
A good example of remote patient care can be found in iRhythm Technologies (IRTC). Theyve built their entire business around a medical device for remote cardiac monitoring. It comes in the form of a wearable that can capture up to two weeks of ECG data while allowing the patient to conduct their life in a perfectly normal fashion. All that data is then fed to a deep learning model capable of arrhythmia detection at a level comparable to a panel of expert cardiologists for a total of 12 output classes.
Most patient data is now stored electronically instead of being stuffed in some filing cabinet. This means a patients data can be shared across healthcare providers allowing for better care. For retail investors, there are a number of publicly traded companies working on electronic health records (EHRs) which are rapidly becoming the norm. Practice Fusion even offers EHRs for free because they know the value is in the data. Companies like Health Catalyst (HCAT) then apply healthcare data analytics to all this big data to create large-scale efficiencies.
A brain-computer interface might be the Holy Grail for human advancement. Just imagine being able to increase your brain storage capacity exponentially. And its not just about augmenting the human brain. Being able to interface with the human brain means we no longer need to use keyboards or mice. Dozens of startups are working on neurotech applications like neuroprosthetics which can rectify brain damage or neuromodulation which can be used for pain management.
Our brains contain about 2.5 petabytes (2,500,000 gigabytes) of storage, enough to store the entire contents of all US academic research libraries.Stentrodes and neural dust are just some of the methods being used to access this incredible biological data storage mechanism. Biohackers can even do this at home using technologies like OpenBCI.
If youre not familiar with the drug discovery process, its largely inefficient with billions of dollars being spent developing drugs that never actually get approved following clinical testing.
Plenty of companies are working on removing all the inefficiencies from the process. For example, a handful of startups are working on helping patients find clinical trials worldwide which they can then participate in from home. Some of the biggest advancements being made in drug discovery are the many computational drug discovery startups popping up which use machine learning to optimize the discovery process.
When drugs do get approved, some create more problems than they solve. Look no further than Americas addiction to opiates which helps explain the proliferation of startups developing substance abuse apps. Many mental health problems stem from drug abuse, so sometimes cognitive behavioral therapies are a better option than hard drugs. Some of the more severe mental health conditions like schizophrenia still arent being treated effectively which means theres still lots more work to be done.
There is no cure for cancer, theres only early detection which could make most cancers benign. Thats just one example where advancements in medical testing could prove to save lives and money, something that everyone working in medicine wants to do. Unfortunately there have been some setbacks for investors, the most notable being the implosion of Theranos. Elizabeth Crazy Eyes Holmes was behind the blood testing company which was fawned over by just about everyone. Now, shes facing criminal charges while other companies try to fill the Theranos void with their own platforms for blood testing. Some of these come in the form of mobile diagnostics platforms that can be used at the point of care.
Advances in medical testing run the gamut, from AI algorithms that detect Alzheimers to blood tests that detect cancer. Were now able to use next-generation sequencing technologies to identify genomic sequences of pathogens that are present in a patients blood or even circulating tumor cells that indicate cancer. Were even working on building the tricorder from Star Trek.
Many companies are now able to detect the presence of cancer in biofluids like blood or urine. It isnt just about early detection, its also about monitoring the progress of cancer treatments. Traditionally, a doctor would take a piece of a tumor a biopsy in order to determine if it is cancerous or benign. Now, many startups are developing liquid biopsies or blood tests that are capable of detecting cancer. One publicly traded in this space is Guardant Health (GH), an $8 billion precision oncology company that primarily sells cancer blood tests.
Once a type of cancer has been identified, we can then use next-generation sequencing to identify cancer-associated alterations thatcan be attacked usingtargeted therapies.Foundation Medicine is a leader in this space with one of the worlds largest cancer genomic databases, holding more than 400,000 genomic profiles. The company had an IPO back in 2013 and got into bed with Roche a few years later. They were finally acquired by Roche in 2018.
Across the pond we have a few publicly traded companies in this space as well. Angle (AGL:LN), a $95 million company which continues to bleed cash while generating minuscule revenues, offers liquid biopsies. Oxford Immunotec (OXFD) is having a bit better luck on the revenue side of things with their blood test for tuberculosis.
Apocell used to be publicly traded but has since been taken private. Theres also a Japanese firm called Sysmex (6869:JP) which is the global market leader inhematology,occupying the number-oneshare of theworldwide market. They have a subsidiary called Sysmex Inostics which has developed an ultra-sensitivedigital PCR technologythat is capable of detecting cancer cell DNA directly from blood.
Blood isnt the only bodily byproduct used to detect cancer. A $13 billion company called Exact Sciences (EXAS) sells a stool DNA test for colorectal cancer. Exosome Diagnostics acquired by Bio-Techne is developing a urine test for prostate cancer. All these samples flying around mean that entire businesses are now being built around the storage and transportation of biological samples.
There are also companies developing cancer therapies that are fine-tuned to certain genomic profiles like personalized chemotherapy. This is where some genetics testing comes in handy.
To say that genetic testing has exploded is an understatement. There are now genetic tests for nearly everything, including genetics tests for pets. In looking at some of these testing use cases, they seem to be borderline gimmicks like DNA dating or genetic fitness tests. Others provoke a great deal of controversy, like genetic tests for intelligence. There are now DNA apps for nearly everything, but where it all started was with ancestry genetic tests.
Large ancestry testing companies like 23andMe and Ancestry.com quickly realized that the real value to be had was not in selling genetic tests, but collecting genetic data and monetizing it. This quickly led to privacy concerns around genetic data. As more and more companies started offering genetic testing services, the big providers started to pivot into genetic healthcare tests for hereditary diseases like cancer or heart disease. Soon, this started to attract the attention of regulatory authorities. Telling someone their dad isnt their dad isnt nearly as painful as mistakenly getting a double mastectomy because a genetic test said you were at risk for breast cancer. Youd be surprised to see how many ancestral differences you get when you run the same DNA sample through multiple test providers. (This is why Family Tree DNA offers a central DNA results database where you can upload all your test results.) When it comes to health related genetics testing, accuracy is paramount.
The evolution of genetics testing is now leading to new business models that try to adapt to the environment. Nebula now offers anonymous DNA testing. Centogene is building the worlds largest repository for genetic information on rare hereditary diseases in the world. Were learning more about how polygenic risk scores can help predict disease. Being able to interpret genetic data is becoming much easier thanks to technologies like machine learning. Even with all these new technologies, theres still an important human element to the whole thing. Finding out that youre at risk for hereditary cancer isnt all that useful unless someone tells you exactly what that means and what steps you should take if any.
For retail investors, theres one pure-play genetic testing stock you ought to consider which just expanded into personalized oncology with their acquisition of ArcherDX Invitae (NVTA). Since we first came across the company seven years ago, theyve come a long way.
Some other themes weve looked at manifest themselves over time as we notice their prevalence. For example, who knew that diabetes would be such a big industry.
All these people who talk about how big is beautiful need to realize that its just not. Sure, there are some cultures that glorify obesity because it represents wealth and security. In America, fat asses abound because people drive up to windows to consume two days of calories in one seating which they then wash down with a diet soda.
The hard truth is that obesity is unhealthy and a contributing factor to a huge global problem diabetes. Weve talked before about why there isnt a cure for diabetes yet. Until there is, we need to treat the more than 100 million U.S. adults who are now living with diabetes or prediabetes.
All kinds of companies are working on diabetes treatments. Dance Biopharm (now Aerami Therapeutics) is working on an inhaled insulin product. Intarcia Therapeutics is working on a potential once-a-year diabetes treatment. But no matter how compelling these products sound, there will be failures, like Cellnovos attempt at developing insulin pumps. Kind of hard to compete with Medtronic (MDT), one of the worlds biggest medical device makers, which already has that sorted with a digital form of an artificial pancreas. (Full disclosure: were long-time shareholders in MDT for dividend growth reasons.)
Another theme we looked at for a bit was non invasive prenatal testing (NIPT) which is pretty much what it says on the tin. Its a test that makes sure your little bundle of joy doesnt pop out with two heads, or be afflicted by any malady that would interfere with the perfect life youve planned for it. Plenty of companies are dabbling in this space, like Ariosa Diagnostics which was acquired by Roche since we last looked at them. Other publicly traded stocks in this space include Natera (NTRA) and Premaitha Health (YGEN:LN) which now goes under the name Yourgene.
We stopped looking at NIPT because we believed the NIPT growth story might be ending. We also didnt find the topic to be that interesting frankly unless of course they come out with a NIPT for intelligence which wed probably invest in.
Stem cells are kind of like a foundation cell that various types of other cells get built on like muscle cells or brain cells. These are useful for applications like regenerating body parts or figuring out what makes cancer cells replicate. One company we looked at, Cellular Dynamics, was in the business of producing stem cells. Theyve since been acquired by Fujifilm Holdings. Another company we looked at was Fate Therapeutics (FATE) which uses renewable master induced pluripotent stem cell (iPSC) lines to produce cellular immunotherapies. We have no idea what that actually means, which is why were not investors in the company. We only like to invest in businesses we can easily understand.
Over the years of developing our life sciences topics, we encountered quite a few companies that we just didnt fully understand. Roivant Sciences was one of them. So were the nant companies coming from the brain of Dr. Soon Shiong, one of the worlds most successful biotech investors. Its very difficult to understand some of these businesses without having a medical background, and if you need eight years of training to understand what a company does, its probably too complex for retail investors. Weve given up on trying to figure out how Nanthealth will revolutionize the U.S. healthcare system, or what Nantkwest does, and instead stick to companies with business models anyone can understand. Another area of life sciences weve looked into before but decided not to follow is RNAi therapeutics.
Another area we looked at briefly was RNAi therapeutics and publicly-traded RNAi companies like Benitec, Dicerna Pharmaceuticals, or Moderna which has soared after going public due to their work on a coronavirus vaccine. To this day, we still dont feel like we sufficiently understand what many of these companies do which means were not able to properly explain them to our readers. Instead of spending hours trying to understand how microRNA relates to RNAi, were staying away from drug development companies entirely. Even if a company has the greatest drug development platform in the world, theres always a risk theyll fail given all the pitfalls of drug development we discussed earlier. The exception to that rule might be the drug development arm of Johnson & Johnson, a company we hold as part of our dividend growth investing strategy.
Fields like cancer immunotherapy, cancer stem cell research, or epigenetics may have loads of promise, but most of these investments are just too complex for your average Joe investor to understand without having an interpreter. Lets talk about some stocks that you dont need an interpreter to understand.
Given the breadth of technologies to be found under life sciences we often take fleeting looks at companies that are doing cool things without necessarily doing any deep-dives or follow ups. These one-offs are oftentimes stocks or planned IPOs we come across that we think our readers might find interesting.
One thing all these stocks have in common is that theyre traded on major exchanges unlike penny stocks which you should avoid like the plague.
We never skip a chance to warn investors about the dangers to be found when dabbling in penny stocks (also called over-the-counter (OTC) stocks). Here are just some of the OTC companies weve written about.
Investing in any these companies would have proved to be a total disaster. Of course there are always some exceptions, but why try to walk through landmines to find them? Do not speculate on penny stocks, no matter how compelling their story is.
Oftentimes well come across micro-cap stocks on foreign exchanges which well write about. More often than not, these companies will end up going nowhere fast. Kiwi company Adherium (ADR:AU) was supposed to bring us intelligent inhalers. While investors continue to wait, their share price continues to plummet. We warned investors that Canadian firm BioMark Diagnostics (BUX:CN) might not have what it takes to bring cancer blood tests to market, and the company still appears to be going nowhere fast. Londons Tissue Regenix (TRX:LN) was working on some exciting new skin scaffolds, but you would have lost -90% of your investment waiting for them to finally start achieving some traction. Even though revenues are picking up and losses are trending in the right direction, shares continue their long downward slide. Its best not to try and catch a falling knife.
Some readers may wonder why we havent touched on one of the most exciting technology there is synthetic biology. Thats because weve dedicated an entire page to synthetic biology, our Guide to Investing in Synthetic Biology. The same holds true for gene editing, something we covered in our Guide to Investing in Gene Editing Stocks. We happen to classify gene editing and synthetic biology under our nanotechnology category, so you may want to go read our Guide to Investing in Nanotechnology Stocks and Companies next. Because life sciences is such a broad category, youll find it peppered throughout all the twelve categories of disruptive technologies we cover here at Nanalyze. For example, machine learning algorithms are now helping us understand extremely complex things such as the human microbiome.
Sure, you can cure your STDs without going to a doctor, but developing something as simple as a universal flu vaccine is still out of reach. While plenty of progress is being made in life sciences, there are still plenty of diseases we cant cure and problems we cant solve. Its safe to say that investors will continue to reap rewards by investing in life sciences companies for decades to come.
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Investing in Life Sciences Stocks and Companies - Nanalyze
