Picture yourself in a doctor’s office. You smell the pungent fumes of alcohol wipes as your day ticks away while you wait for your prescription. Your genetic illness means that you will have to undergo a series of expensive treatments and may even have to be operated on in a dangerous surgery.
Now reimagine a world where your entire genome, the instructions that make you who you are, is mapped at youth and every harmful mutation and error can be corrected and edited years before they become a life-threatening issue. Imagine genomics.
Source: The Human Genome Project
What is Genomics?
Genomics is a rapidly expanding field of biology that aims to decipher and understand the genetic makeup of an organism. Understating the genome is so crucial because the DNA it is composed of can give scientists valuable information on which sequences correspond to phenotypic, or real world traits.
Essentially, the instructions that decide what hair color we have, how tall we are, and if we are at an increased risk of diabetes can be recorded and researched so that scientists can reach new insights and develop cures. There are even individual benefits for genomics. For example, the genetic code of patients with cystic fibrosis can inform doctors that a young child, who just had their genome mapped, will develop the disease later in life. This early knowledge will allow for preventative measures that can expand the life expectancy of carriers by dozens of years.
Past generations have experienced the agricultural, industrial, and digital revolutions—we are now living through the genomics revolution. Previously held back by politics and traditional pharmaceuticals, the genomics industry is now unleashed and will prove to be one of the most significant developments for humankind of the 21st century.
Why now?
With all the progress in this industry in just the last three years, it can be helpful to remember that the Human Genome Project, the mapping of the first human genome, began a whole 30 years ago on October 1st, 1990.
So why is now the perfect time to invest in this field when this “revolutionary” and “rapidly growing” technology began before the World Wide Web even went public?
Now is the time to invest in genomics because the industry recently entered exponential development, it is on the verge of overcoming political and regulatory boundaries, and it has reached the sweet spot of visibility in the market.
Let’s start with the history of genomics’ visibility in the market.
In the early 1990s, as with the beginning of any industry, there were dozens of competitors in a haze of chaotic hype with no clear sign of which companies would emerge as market leaders and which would file for chapter 11. Just like during the dot-com bubble where the majority of the initial companies did not turn a profit, investing at the birth of genomics would have been an incredibly risky prospect. While full of great potential, the technology was too early—reality needed to catch up with expectations for the stock price.
Real Vision Finance described the cycle of genomics as an “s” curve. The initial hype made the public aware of the industry but it soon faded away into the “valley of despair.” As the field matures, it approaches a sweet spot where companies in this sphere are ripe for investors as visibility will soon follow the real growth.
Source: Real Vision Finance
Genomics has also experienced political and perception challenges. As with any new and growing industry, genomics has been viewed with an unhealthy amount of skepticism from the public and lawmakers. For example, the government of the European Union decided to completely ban the growth of GMOs despite the fact that Europe remains the largest regional consumer of them in the world. Public outcry of cloning and fields that involved the exchange of genetic information from one organism to another was also an inhibiting factor in overcoming regulatory boundaries for this technology.
While the perception of genomics may still be unfavored in the public eye, these feelings will soon dissipate. The reason? Genomics of the 2010s is much more focused on reading and writing the instructions within a single human so that there is no cross-organism exchange of genetic information. Whereas researchers once used controversial stem cells to replace tumors, the science has developed to the point where skin cells can now be turned into heart valve cells. While some may continue to claim that genomics “plays God,” the sheer benefits, such as the cure for cancer, will be enough to overcome this barrier.
In fact, it is this very fear—that investors consider this field too risky and instead opt to put their money into “safe” pharmaceuticals—that signals genomics’ undervalued position in the market.
Finally, the rapid growth of this industry in the past three years is perhaps the most alluring and convincing argument for investment in this space.
The price of DNA sequencing is falling by 30% - 40% per year. Whereas the cost of mapping the first human genome was 2.7 billion dollars, the cost now sets at less than a thousand. Even more significant, the time required to map each genetic set fell from 13 years to less than a day in 2019. The price is projected to continue falling and reach $100 by 2023.
Source: National Human Genome Research Institute
What makes genomics exciting today is the emergence of a CRISPR-CAS9, a gene editing technology. It can be helpful to separate genomics into read and write technologies. Reading is the mapping of the genome so that early prognoses can be made and cures can be researched. Writing is the cure, CRISPR will end disease.
Instead of being bystanders to disease, simply hoping to slow down its spread through treatments, gene editing will allow doctors to cut out mutations before they ever become a problem, ending the disease from within. And similarly to mapping, the cost of zinc finger nuclease, a gene-editing technology, has been reduced in price to $30 from $5,500. While this reality is still 15 years out, innovations today indicate that the best is yet to come for this industry.
The Cure for Cancer and Other Things
The holy grail for medicine and treatments has always been the long-coveted cure for cancer. For the first time in human history this and the cure for all ailments is within reach as we pass the dawn of the genomics revolution. Genomics and CRISPR are the panaceas of mankind.
Only 5% of monogenic diseases are treatable with current technology. Gene editing will allow researchers and doctors to treat and cure every single patient of their monogenic disease by removing the ailment right from their DNA. If this feat was accomplished, it would represent a $2 trillion opportunity. However, only 2% of all genetic diseases are contained within a single gene. While the haze of the future makes determining the fate of polygenic diseases unclear, leading experts are optimistic that gene editing could one day cure all genetic disease.
The opportunity derived from the polygenic market is unfathomable and inestimable. With disease cured, the world may become a dreamful utopia where surplus is plentiful and profit is unimportant. This is the potential of genomics.
Although the current sphere of genomics is rather anthropocentric, opportunities also lie at the crossover of gene editing and agriculture.
According to ARK Invest, breakthroughs in genomics research will be able to feed an additional 800 million people by the year 2025. Scientists will soon be able to edit corn so that it can resist pests and salmon so that the fish may reach maturity in half the time. Genomics is at the forefront of ending world hunger and curing cancer.
Source: National Human Genome Research Institute
Why it Doesn’t Make the Headlines Yet
How could an innovation with so much promise fly under the radar? Well, currently the focus of investors is on automation, space, and other growing industries. Investors are not pricing genomics companies correctly because of the fear of deaths in trials and their competition with Big Pharma, as well as the previously mentioned government regulations.
Healthcare is an especially scary industry as it hangs life and death in the balance. Some investors may still be scared from Kite Pharmaceuticals, who’s stock price plummeted 40% on news that a patient died in a clinical trial. What was remarkable was that of the 150 patients with aggressive non-Hodgkin's lymphoma, only one died. The trial was actually indicating success, not failure. The drug was proven to have a 50% complete remission rate for patients on their deathbed which led Gilead to purchase Kite for $12 billion. There is always the risk of headlines decimating a stock price, but oftentimes the paranoia is unfounded and says nothing of the long term potential for an industry.
Investors are used to healthcare as a slow and titan-controlled arena. According to Cathie Wood, the CEO of the ARK Genomics ETF, the premise that “DNA sequencing will soon become part of our annual physicals which will allow us to identify where our genes have mutated and why we have certain kinds of diseases,” permitting us to forgo repeated medications and treatments, certainly requires some acclimatizing. Simply, we aren’t used to healthcare being sexy.
Investors want to hide behind traditional pharmaceutical companies because their size gives off a false impression of safeness. In truth, these behemoths will be the first to go due to government regulation and the genomic revolution. Typically, it is a better business strategy to produce costly treatments than a one time cure, but that profit avenue will quickly evaporate when the cures are made available by these innovative companies. The genomic revolution is coming faster than most realize and it will change humanity for the better once it is underway.
Investing in Genomics
As an industry, genomics is expected to grow at a compounded annual growth rate of 16.5% in 2020, according to TechNavio. More impressive, however, is that the area will experience an acceleration, growing by a 19% CAGR by 2027.
Source: TechNavio
Despite the recent growth of genomics companies, the market is not in a bubble due to the deep value and projected cash flows. Genomics will continue to be an incredible investment until company names begin to appear in headlines, which could signal the market is overhyped. But by the same token, it is these cure headlines that will bring attention to genomics and a return on investment.
With any growing sector, there are significant risks. As key players emerge, patent wars may leave some companies with cures and others with nothing. Especially as this period will give way to cross-licensing activities, which is beneficial to the industry as a whole, it can be beneficial to hedge risk by investing in ETFs.
While the Franklin Genomic Advancements and Global X Genomics ETFs have shown impressive returns, none compare to the ARK Genomics Revolution ETF with its 137% growth over the last year. Headed by Cathie Wood, who specializes in investing in disruptive industries, the ARKG ETF is a top pick for those seeking to gain exposure to the genomics revolution.
Source: ARK Invest
“We think that much of the decision-making in health care is a function of either guesswork, or experience, or gut. And we think that as we learn more and more about the human genome, that the answers are going to become more precise. And the cures will then follow.”
— Cathie Wood
Sources