Advances in chemistry, process engineering, and computing power have led to incredible advances in DNA sequencing and our understanding of the human genome. Much digital ink has been spilled discussing the investing opportunities within the field of genomics, which studies the structure and function of genomes. Genomics has plenty of growth left, but investors need to start considering looking beyond the field of study as 2020 approaches.
Those same technical advances powering genomics have also thrust open new fields of study that were previously off-limits to science or had little application without a fundamental understanding of the genome. These other so-called omics, including transcriptomics, proteomics, fragmentomics, and others. These opportunities are increasingly accessible to individual investors, but it can certainly get a little confusing. Here's a survey of stocks that rely on these omics to keep an eye on at the turn of the next decade.
Individual investors of any background can acquire the proper mental framework for understanding the evolution of omics and the opportunities within each field of study. It starts by understanding a simple biology term: DNA transcription.
DNA transcription is the process organisms use to convert the genetic code (DNA) into chemical templates (RNA) for building the molecules that power life (proteins). As they say in intro biology courses, "DNA makes RNA makes protein."
While DNA is the furthest upstream you can go in the set of biological instructions, and we have a much better understanding of the human genome than we did 10 or 20 years ago, researchers have run head-on into the complexity of biology. Case in point: There are an estimated 20,000 human genes, but they encode millions of different protein variants.
Thus, the rise of different omics to fill in the gaps of knowledge genomics leaves behind. Using human biology as the example: Whereas genomics is concerned with the structure and function of the 20,000 genes that we call the human genome, proteomics is concerned with the structure and function of the millions of protein variants that comprise the human proteome. And so on.
Thanks to a flood of initial public offerings (IPOs) in the last year, individual investors can now gain exposure to a number of omics stocks. Many are offshoots of genomics and require advanced sequencing techniques, such as next-generation sequencing (NGS) or whole-genome sequencing (WGS). But what do they all mean, exactly? Here's a short list.
What Is It?
Omics Stock Example
Illumina is the undisputed king of DNA sequencing and genomics. Its laboratory hardware allows researchers around the globe to read both DNA and RNA, but it's been positioning itself to keep up with the fast pace of innovation in living technologies. The company is trying to acquire Pacific Biosciences -- if regulators in the United Kingdom allow it -- to be better equipped for the future of DNA sequencing, which will likely move beyond the methods Illumina currently uses to dominate the global market. It has also launched numerous new research and clinical diagnostic panels to expand the recurring revenue pipeline extending from its massive installed base of machines. In the future, hospitals and even your local doctor's office could run tests on-site to generate results in hours, not days.
One step downstream from DNA, Moderna has gone all-in on studying mRNA and the transcriptome. If errors in DNA transcription give rise to mutated mRNA and faulty proteins get built, then diseases and cancers can proliferate. Therefore, the company thinks it can engineer mRNA medicines to correct errors and treat disease. Clinical results to date have been underwhelming, which might be explained by the complexity of biology. A single mRNA template can be spliced and altered in the body to create any number of proteins, so it may not be the ideal therapeutic target or foundation for new medicines.
Meanwhile, the field of proteomics will be even more difficult to crack, but Roche thinks it's found a way to tap into the gold mine of biological data in the proteome. The company has been working with Swiss start-up Biognosys to develop ways to measure and quantify proteins from tissue samples collected in clinical trials. If researchers knew how the proteome changed over the course of treatment, then it may shine a light on better biomarkers (signals of disease or immune function) and lead to greatly enhanced drug discovery efforts. The goal is to sell the services or processes to biopharmaceutical companies across the globe.
And of course, the emergence of new omics has powered the rise of liquid biopsy platforms and tests developed by Guardant Health, Adaptive Biotechnologies, and Personalis. While tissue biopsies are often used to detect cancer and inform treatment options, they're invasive and sometimes the tissues are inaccessible. A liquid biopsy detects circulating tumor DNA (ctDNA) from a blood sample, which is easier to obtain but comes with unique data processing requirements.
The amount of ctDNA in an advanced-stage cancer patient may only comprise 0.46% of the genetic material in blood, while that number may only be 0.01% in early stage cancer patients. That's an opportunity ripe for omics.
For example, Guardant Health is integrating fragmentomics into its workflows. Fragmentomics can detect chemical signals in a strand of DNA that tell researchers where it originated, such as healthy tissue or a tumor. Meanwhile, Adaptive Biotechnologies is making use of immunomics to study changes in immune cells belonging to the adaptive immune system. The company had to build a database of over 20 billion immune receptors to make it all work, but it has an FDA-cleared test called clonoSEQ for detecting measurable residual disease in white blood cell cancers.
It's important for investors not to lose sight of an important truth: Regardless of the sometimes confusing scientific terms that get thrown around by companies, the most important omics is still economics. Some of the businesses exploring new omics have yet to reach sufficient commercial scale required for profitable operations. Some never will. Therefore, investors need to remain vigilant that companies are seeing per-unit margin improvements as they scale operations and are making good use of IPO cash, despite some significant hauls.
To be fair, the valuations of some omics stocks are a little difficult to justify following high levels of hype surrounding public debuts, but they seem to be falling back to more reasonable levels. Investors with a long-term mindset could find buying opportunities nonetheless, especially if Illumina can fend off competitors and grow its testing business or if Guardant Health successfully commercializes its liquid biopsy tests.