Investing in biotechnology
Biotechnology is an investor’s paradise. It’s fascinating, profitable and exciting. Not to mention high risk. You stand to gain a fortune or lose your stake entirely. Often in just a matter of days. But before we take a look at some biotech investing trends and the right biotech stocks to add to your watchlist, let’s get the basics sorted…
What is biotech investing?
Biotechnology is about using technology to harness the power of, or change the nature of, biology. We’ve been doing biotech for thousands of years. Selective breeding of agricultural staples, for example. Everything about your dog is probably the deliberate result of hundreds of years of biotech. To varying degrees of success, I might add.
The biotech sector of the economy is one of the few that still uses the stockmarket in the way it was originally intended – to raise funds to invest in products. That means, by buying biotech stocks you are not only hoping to profit, but also funding the continued drive to make the world a better place.
Biotech helps us become healthier, happier, wealthier and more efficient.
Not that you need to care about the world to make whopping gains from investing in biotech. Fortunes are made and lost in biotech stocks. Let’s take a look at some promising biotech research areas and the stocks you should put on your biotech watchlist if you’re a believer in what they promise.
Personalised medicine and genetics
My favourite biotech trend is personalised medicine. Did you know that many commonly prescribed drugs only work on a small fraction of patients they’re prescribed to? And the rate of false positives in medical tests is so high that they’re actually doing more harm than good?
Statins, which are used for preventing heart attacks, only benefit one or two out of 100 people they’re prescribed to, according to Eric Topol of the Scripps Research Institute. And they’re the most successful drug in the history of the pharmaceutical industry. By sales, anyway. It’s much the same elsewhere.
The idea of personalised medicine is to identify health risks reliably before they become a problem. And tailor healthcare treatment to the individual. This saves money, time and mistakes, and prevents all sorts of other problems.
But to provide personalised medicine, you need to understand the patient inside out. And that’s where the biotech breakthrough comes in. Genetics allow us to figure out what diseases a person is susceptible to, and what cures will and won’t work for them. For example, I know from a partial genome sequencing that I’m likely to get type 2 diabetes, and that the go-to drug is unlikely to work for me when I do.
Before the personalised medicine revolution can take off, we need to get better at sequencing people’s genomes so we can predict what they’ll get and what to do about it. The genome sequencing industry is set to hit more than $10 billion in revenue next year.
The cost of sequencing a genome has gone from $3 billion to $1,000 since it was first done. And the maker of a machine that can sequence five genomes a day at $1,000 a piece is Illumina (ILMN:NASDAQ). Its smaller competitors in the area are Pacific Biosciences of California (PACB:NASDAQ) and Thermo Fisher Scientific (TMO:NYSE).
Gene editing and biomechanics
If we can use genes to figure out what makes our body perceptible to disease and cure, we can also figure out which genes need changing. CRISPR is the secret and CRISPR-Cas9 is the method. You can check out the science elsewhere.
Harvey Fineberg began his 2011 TED Talk by explaining the potential of gene editing:
How would you like to be better than you are? Suppose I said that, with just a few changes in your genes, you could get a better memory – more precise, more accurate and quicker.
Or maybe you’d like to be more fit, stronger, with more stamina. Would you like to be more attractive and self-confident? How about living longer with good health? Or perhaps you’re one of those who’s always yearned for more creativity.
Which one would you like the most? Which would you like, if you could have just one? (Audience member: Creativity.) Creativity. How many people would choose creativity? Raise your hands. Let me see. A few. Probably about as many as there are creative people here. (Laughter) That’s very good. How many would opt for memory? Quite a few more. How about fitness? A few less. What about longevity? Ah, the majority.
Gene editing allows us to do this. And there are three major CRISPR companies positioned to make it happen. Crispr Therapeutics (CRSP:NASDAQ), Editas Medicine (EDIT:NASDAQ) and Intellia Therapeutics (NTLA:NASDAQ).
Bioengineering – replacing your bits and pieces
Organ harvesting brings up images of Chinese prisoners with missing kidneys. But it needn’t be that way. What if you could grow a kidney outside your body before your faulty one gives up the ghost? Well we aren’t quite there yet. But bioengineers have figured out how to combine your flawed body with the tools it needs to function.
Cochlear (ASX:COH) implants for hearing are already famous. Second Sight Medical Products (EYES.NASDAQ) makes bionic eyes and the first NHS patients recently received them. Carmat (ALCAR.EPA) produces artificial hearts.
A few weeks ago my friends started comparing their trendy new watches. Every day, over and over again, they’d lean over and peer at each other’s dials. It was odd, but I didn’t take much note. Then they started challenging each other. Who could reach 10,000 first? How many did you do today?
Eventually I figured out that these aren’t watches. They’re Fitbits – personal health-tech that tells you all sorts of things. Your heart rate and resting heart rate, the number of steps you’ve taken that day, and much more. You can electronically challenge your friends to races when they’re on the other side of the world – the first to 10,000 steps.
The fad reminds me of Pokémon cards, to be honest. But think about what it’s done. The health benefits to my friends from challenging each other all the time are enormous. I’ve seen people tearing out the front door to get a step ahead of their partner, literally.
Fitbit (FIT:NYSE) and its competitor Garmin (GRMN:NASDAQ) sit with Apple in this field.
The same technology is used to track patients and criminals too. Personal health-tech is one of the first consumer booms that might actually do some good.
Harnessing the small, the new and the old
There are three more advances in biotech I’d like to share with you. Their differences show how biotech is a remarkable force for good from many different angles. Biotech is making intrusively big things tiny, natural things stronger and entirely new advances inspired by nature.
Cancer is the biggest killer around. If you imagine your body as a garden, then cancer is a weed. You can use surgery to do the weeding, you can use the weedkiller known as chemotherapy or intensify the sunlight with radiation. But these harm all the plants too.
Immuno-oncology is the art of adding fertiliser to strengthen the immune system’s ability to fight the cancer itself. It works with the body instead of attacking it. This could revolutionise the cancer treatment world by becoming the primary option doctors turn to. The companies that succeed in this field could become outrageously profitable overnight.
On the other side of the spectrum we have synthetic biology. This is the engineering of brand new versions of biological entities.
Nature is powerful. We used to breed it in an attempt to harness that power. But if we can mimic it, we can harness that power in a way that is designed to be harnessed from the beginning. We might create a new type of algae to produce synthetic bio fuel. Or we might harness the information storage power of a DNA strand to keep vast amounts of information efficiently. Our bridges could regrow themselves instead of growing rusty.
Recreating nature unnaturally presents some interesting ethical questions. But the benefits outweigh the risks.
Then there are the shortcomings of the human body when it comes to treatments. In short, our fingers are a bit too big for all sorts of useful medical procedures that are theoretically possible. That’s where da Vinci surgery comes in.
By translating lumbering human movements into miniscule adjustments, robotic-assisted surgery is making impossible interventions possible. Better still, you can reduce the risks and intrusiveness of the surgery itself – known as minimally invasive surgery. The da Vinci surgical machine is already up and running. It even has an ergonomic chair for the operator to sit in.
Is it time to invest in biotech?
The danger in biotechnology investing is that nothing much happens. These stocks tend to slowly burn through their cash and then raise new capital. Only every now and then does a biotech stock boom thanks to a breakthrough. Often just because of takeover speculation.
But in the meantime, they have a tendency to trend downwards as your share of the ownership is slowly diluted each time capital is raised.
Worse still, because biotechs are usually small companies, they can be very much at the whim of the ebbs and flows of the broader stockmarket. When people are optimistic on the whole, they pile into risky bets like biotech. When people want out of the markets, they often sell their riskiest bets first – their biotechs. It’s ironic how the stocks least dependent on the wider economy and stockmarket are the ones most affected by it.
The point is that you need to be willing to stomach big gains and losses as a matter of course. And you need to understand the difference between a rising and falling market vs a biotech stock that is surging because of its technology.