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Genome sequencing - basically figuring out the order of DNA, the building blocks of life - was once essentially little more than a lab exercise. But now, it has reached commercial viability and then some.
The field of genomics goes back to the 1950s, though it really started in earnest with the start of the
Genome sequencing, in which scientists and their myriad machines detail the entire set of human DNA, has fantastic medical potential, allowing researchers to find genetic mutations - errors that can be harmless at times, but other times debilitating or even fatal. Moreover, genome sequencing is starting to reach realistic pricing - the costs have fallen down to about $1,000 at the low end, and companies are racing to cash in on the myriad opportunities.
Here are six genome sequencing stocks to buy for this emerging medical technology. While genomics isn't the biggest investing buzzword today, this is a promising niche of the market that could take off as it gains more prominence.
Illumina
Market value: $43.0 billion
Illumina (ILMN, $292.25) sells gene sequencing equipment and array technologies. It's a leader in the growing market for gene sequencing technology, focusing on the fields of prenatal testing, rare diseases, oncology, population genomics and consumer genomics.
Population genomics is large-scale comparison of DNA sequences of the population by governments and research labs. Meanwhile, consumer genomics is the backbone of growing consumer-facing companies such as
Illumina's big advantage is its installed base of nearly 11,600 systems, found in hospitals, research labs and medical facilities. This equipment is relatively expensive, and carries per-use costs, but the investment the customers make in Illumina technology is what makes switching to a different platform less likely. This installed base gives Illumina runway to grow as genome sequencing takes off. As an example, Illumina genotyped more than 7 million consumer samples in 2017 - approximately equal to its total volume since 2007.
The company has grown revenues at a compound annual rate of approximately 22% since that point. Moreover, Illumina has demonstrated it can capitalize on its lead, generating more than $500 million in free cash flow each year since 2014.
Analysts at
As genome sequencing grows, so grows Illumina.
Myriad Genetics
Market value: $2.1 billion
Myriad has a solid franchise in cancer testing with a reputation for accuracy and a large database of variants that helps the company maintain premium pricing. Helping patients find the most effective antidepressant medication may be an even larger opportunity for Myriad. While cancer testing is a $4 billion market with 1.5 million patients, the antidepressant market is two-and-a-half times larger, with approximately 8 million patients.
Myriad's GeneSight personalized genetic testing has gained favorable reimbursement coverage from insurers based on estimated savings of nearly $3,300 for patients using its tests. Moreover, it represents an important step in diversifying its product portfolio.
Since 2014, Myriad's revenues and earnings have been flat to slightly negative. However, as its products diversity and its reimbursement coverage continue to improve, the stock is poised for upside.
Genomic Health
Market value: $2.2 billion
Internationally, the opportunity may be even larger. Covered lives in its current markets, which include
Revenue growth has been tepid over the past five years, growing from $263 million in 2013 to $341 million in 2017. Profitability was achieved in 2017 on an "adjusted basis," but better is that the company has been profitable without accounting shenanigans through the first nine months of 2018. Next year may see
CFRA analysts expect the company's investments in its salesforce, international expansion and a new genetics division to sustain its profit growth.
Agilent Technologies
Market value: $20.7 billion
The Diagnostics and
Agilent has proven competent in using mergers and acquisitions to prop up various parts of its business, and that includes genomics. Agilent bought
Sarepta Therapeutics
Market value: $6.8 billion
The market for genomic testing is promising, and as the previous slides indicate, there are plenty of entrants. By contrast,
In June, Sarepta presented strong results from a gene therapy for Duchenne muscular dystrophy (DMD), a muscle-wasting disease. The company's gene therapies are also used to treat Limb-girdle muscular dystrophy (LGMD), and it is forming a partnership to develop other treatments for the above diseases, as well as diseases of the central nervous system.
The company's flagship eteplirsen for treatment of DMD was approved in 2016 and is anticipated to deliver approximately $300 million sales in 2018. And Sarepta has a deep pipeline to boot. The company currently is developing 21 therapies for rare muscular diseases. To wit, analysts at
Spark Therapeutics
Market value: $1.5 billion
There is also a much larger opportunity for Spark to develop a one-time treatment for hemophilia. In
Spark's revenues are expected to explode from $12.1 million last year to $81.3 million in 2018, followed by a more modest (but still robust) 36% improvement to $110.4 million.
Ken Berman is a contributing writer at Kiplinger.