Summary

• Illumina and its short reading technology pushed the sequencing costs down during the last decade.
• Long reads and artificial intelligence are improving the sequencing and will likely keep driving the costs lower.
• Several companies are building business models around these technological improvements.

The past decades brought us the foundational work that will enable significant advancements during the next decade in genomics. Part of the merit goes to Illumina (ILMN) that pushed the sequencing costs down during the last decade. The short-read technology was the paradigm over which many companies developed new technology and researchers made scientific breakthroughs.

(Photo credit: National Human Genome)

Now, the tide is turning again. Pacific Biosciences (PACB) developed one of the first commercially available long-read sequencers. The HiFi allows whole-genome sequencing, which is an upgrade because it offers superior accuracy and better variant detection. Right now, the costs are still higher, but there is lots of room for improvement. The costs should keep decreasing at a roughly constant rate over time.

Artificial Intelligence should offer a helping hand to genome sequencing. For instance, HiFi integrates Google’s (GOOGL) (GOOG) AI to correct inconsistencies in the data and improve accuracy. Other companies worth mentioning are 10x Genomics (TXG) and Bionano Genomics (BNGO).

Spillover effects

Sequencers are mainly used by organizations that need genome sequencing data to perform their activities. We are referring to researchers, diagnostics companies, and pharmaceuticals. The fact that the costs are dropping while the information is getting richer, means that more and more organizations can join this field.

For instance, Invitae (NVTA), a diagnostics company, has reached an agreement to buy a production-scale high-throughput sequencing platform based on HiFi’s technology. Invitae is pursuing this path because it wants to offer full genome information to its patients. Further drops in cost will attract more companies interested in providing new genomic-based services and products.

Cancer screening is another area that will gain from richer information and lower costs. Companies like Exact Sciences (EXAS) that are pursuing liquid biopsies that can detect multiple early-stage cancers will benefit from more information that allows them to find more biomarkers. It goes without saying that lower costs will be critical to convince third-party payers to adopt this innovation.

Biotechnology companies are also benefiting from lower costs and better information. Companies like CRISPR Therapeutics (CRSP) that are developing gene-editing therapeutics generate research made possible by genome sequencing and its applications. The Covid-19 silver bullet seems to be the new mRNA vaccines developed by companies like Moderna (MRNA) and BioNTech (BNTX). Both these companies weren’t really focused on virus vaccines. They ended up applying their knowledge to a different area in a time of great urgency. However, it goes a long way to show that there are plenty of new paths to explore.

Search engines and genomics

However, it is not just genomics changing the pharmaceutical sector. AI is also providing a helping hand to accelerate the genomics revolution. As I mentioned, the HiFi sequencer needs AI to correct its readings. If done manually, it would be laborious work. Not easy to scale and unlikely to become broadly adopted.

One can argue that AI is almost everywhere in the genomic sector. It is helping to identify cancer biomarkers, predicting protein-folding, and understanding which genes are responsible for certain health problems.

Investor takeaways

I can understand skeptics that question what the real size of the genomics revolution is. I get it. It’s hard to envision a future for something that, in most cases, has a $1,000+ price tag and that many insurers do not cover.

For the revolution to work, the cost will have to keep decreasing. One interesting parallel is the cellphone industry. By 1999, one could hardly envision people streaming movies on their cellphones in the subway on the way home. The best types of equipment weren’t capable of such a feat, and even if there were, there wasn’t a network capable of doing it on a commercial scale. However, twenty years later, businesses associated with streaming and mobile applications are worth billions every year. How? Costs kept trending lower, both in network infrastructure and in the chip market for mobile. On a different scale, lower costs and better information might provide the same result for genomics.

Regarding specific investments, I’ve pointed some of my favorite companies. However, I reckon that I am not a specialist in the field, and some of my choices might not payout. Additionally, some other unknowns will certainly emerge and take over some hefty markets. Therefore, I understand that many investors might not want to involve themselves in something so early on. I respect that, but I also note that, by being early, the pay-offs might be even better.

One way to overcome that problem is by investing in a thematic ETF. From what I have seen, the Genomic Revolution Multi-Sector ETF by ARK Invest (ARKG) is the best option. Unfortunately, that won’t be an option for European investors. Due to some bureaucratic nonsense, ARK funds are not available for retail investors in Europe.

All-in-all, the genomic sector is emerging as a new force. The costs are dropping consistently, and innovations are spreading and opening new avenues for growth. Several promising companies in this space are still trading at less than $10 billion. Some have platforms that might be scalable to develop even more products. This sector is still in the early innings of the game. Investors might reap good rewards for being early. If you want to explore some companies in the sector, I leave a shortlist below. I do not own all of them, but I think those companies are a good point to start researching.

Disclosure: I am/we are long ARCT, CRSP, EDIT, EXAS, GOOG, GOOGL, NVTA, PACB, RPTX, SRNE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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