Performance review cancelled – Let’s talk DNA

The last few months I struggled somewhat to keep up the posting, I clocked only one post in November and two in December. This is partly due to me moving back to Asia, but to be totally honest also a bit of writing fatigue from my side. Especially writing these performance/portfolio updates and the time it takes to update my Excel spreadsheets with the new NAV. It is fairly cumbersome to log all portfolio movements including corporate actions etc to replicate a full portfolio NAV.

I started this post writing a year end update, but then I changed my mind. I did update my portfolio, so you can find all details under the Portfolio page, but I’m not going to spend more time reflecting on my past performance, it was good, but not great. So screw it, writing should be fun, not an obligation. Let’s talk about investment ideas and what I have been looking at the past few months, I will on focus on a new emerging theme in this post and will move on to more specific stuff in the coming posts.

Finding a new theme

For those of you who have followed me for a while, know that I like to find themes with obvious tailwinds, winds that more or less prevail even though the general cycle turns south. Within that theme it then usually takes a considerable amount of time finding the right companies to invest in, and in most cases there are no ideal/perfect candidates.

Sequencing the genome

Something that I started to hear and read about a few years ago is how quickly the cost of sequencing a human beings full genome has come down. People knowledge on the topic takjed about that in a few years time, anybody would be able to afford sequencing their own genome. I thought it sounded cool but did not spend so much time looking into it. Then about a year ago I listened to a very inspirational speech about this, and realized this is going to be real in all of our lives very soon, just as we go to the dentist or any other routine check-up needed.

costpergenome2015_4

 

There is another fairly recent finding and technological breakthrough, which a good friend of mine educated me about. It is called CRISPR and a very nice educational video is available on YouTube:

This ties in very nicely with this new understanding of our DNA. First understanding our defects through sequencing, and then being able to edit out those defects. Also it should be mentioned that the possibility to analyze all of this genetic data becomes possible thanks to new big data technology and cloud storage. So 3 big technological fields together opens up a world of possibilities. All of this is fantastically interesting to me. Most likely this will affect all of our lives one way or another in the future. Could this also be a new investment theme for my portfolio? Just as with electric vehicles I will spend time during 2017 to educate myself on the topic and let’s see what emerges.

Can we get a discussion going?

I have not managed to get a discussion going here on the blog with those of you who read my posts, but if you have something to contribute on this topic, please do so.

I leave you with some stock leads to look into in these two fields, all listed in the US:

Genome sequencing field: Illumina (ILMN), Thermo Fisher (TMO), Qiagen (QGEN) and Myriad (MYGN).

CRISPR Technology: Editas Medicine (EDIT), Intellia Therapeutics (NTLA) and CRISPR Therapeutics (CRSP)

8 thoughts on “Performance review cancelled – Let’s talk DNA

  1. Very interesting investment theme “GlobalStockPicking” ! Curious to see what you will find here.
    Just as I’ve been reading yours and other “stock-blogs” I rarely make any comments, but now when you are asking :)
    As “Aktieingenjören”, I’m also in the genomics field, somewhere in the intersection between bioinformatics/lab. Aktieingenjören made a good quick breakdown of the major players. I have been actively looking myself for investment opportunities within this field, but currently do not own any stock. Illumina do look kind of stretched value-wise, and I’m not a big fan of going with in with the already dominant player. Just like Aktieingenjören, I would personally be more inclined to look at smaller software players with easily scalable business models. The bottleneck today is not really sequencing throughput anymore, rather it’s on the computational side.

    Just a few notes on some of the players in the sequencing field. Regarding Illumina, as the dominant player, they are trying to create a complete ecosystem, from the sample preparation → sequencing → cloud based data storage → bioinformatic analysis / diagnostics etc. Once you are in that system, it will be convenient to stay there and costly to “get out”. I guess you can say that they are building what other stock blogs often refer to as “moat” (?). Just in the last couple of days, the JP.Morgan HC conference have been ongoing with the usual number of announcements in the field. (The next conference to look for is ABGT in the middle of feb, usually new tech is announced there as well). Illumina revealed a new high end platform yesterday as well as collaboration with Philips regarding data analysis. The stock really popped on the news yesterday. Here, we are talking very expensive equipment, refrigerator-sized, aimed at core-facilities, but they also have smaller machines to cover the low-end market. The main advantage of Illumina today are the cost per base-pair, high throughput and low error rates. As aktieingenjören mentioned, the technique are “short-read”, which comes with a few caveats/disadvantages compared to long-reads. Without going into the biology, the question of utility really comes down to the biological question at hand, for some things short-reads are totally fine/adequate, but for other things, long-reads are very helpful (e.g. structural variants, haplotyping diagnostics). Pacific Bioscience (“pacbio” instrument”) have been to “go to” instrument for long-read sequencing. If you look back some weeks ago, their stock took a huge hit when Roche announced the termination of their collaboration (taking pacbio into the clinic more or less). The pacbio instrument is really beautifully engineered, but it’s complex, large, expensive, and frankly I have a hard time seeing it in the clinic. My own take is that this instrument might be out-competed in a few years time.

    So far, Illumina seems to stay all in on short-reads. The question is if this is the right move. You can however “circumvent” the short-comings of short-reads with some clever chemistry (when you prepare your samples for sequencing). Applying such methods is today “coupled” with sequencing on Illumina machines. I would not be surprised if we might see some acquisition from Illumina here (e.g. 10x Genomics), which would make sense, even though longer-reads are always better (but are harder to achieve).

    Oxford Nanopore (ONT) is the player “everyone is talking about”. But they have been that for many years now, constantly promised to be more or less somewhat of a holy grail, i.e. long reads, low cost, small inexpensive equipment etc etc. They have some very very cool prototypes (like finger-small sequencing machines that you can plug into your mobile phone), but also just recently starting to ship bigger stuff for the high end market. Until today, the error rates have just been to high for routine applications. I have personally tried some of there stuff and just in the last year, there have been some major improvements error-rate wise. 2017 will be interesting, Maybe their time is here now? ONT could, if it delivers, be a threat to players like Illumina, or they could take some niche, like the lower end market, sequencing-in-the-field applications with their mobile platforms etc. I would personally not mind placing a speculative investing bet on ONT, but they are not publicly traded.

    Then we have some other players lurking in the shadows, like Roche with their “Genia” system. Not much is known about it yet apart from some big promises. As well as a number of smaller players that there are rumors about. All in all, the field is moving fast and I expect a lot of new info during the coming year.

    Ok, feeling I’m rambling here :-)
    Anyway, I like your new investment theme 😉

    1. JoeyDowie

      Many thanks for taking the time to educate us, I will come back to your post when I know more myself. Currently trying to look at companies working with the data from the sequencing, but have not really found any investment candidates.

  2. Genome sequencing is maturing rapidly and I feel that it is similar to Operating systems in the 1990s. You have a pretty good idea about the major platform players (Illumina, Ion Torrent from Thermo Fischer and Pacbio from Pacific Biosciences which are all traded on the stock market). In research Illumina have been the market dominant operator but with Next Generation Sequencing (NGS) entering the healthcare system it seem that they can lose some of the dominance. Ion Torrent is very good for small genomes (bacteria, viruses and some parasites) while PacBio got a unique capacity for long read sequenced which help resolve many complex tasks related to cancer and/or the immune system. It is also a good idea to keep track of Oxford Nanopore which is privately held but got the potential to disrupt the market with its nanopore technology as it is both cheap (threat to Illumina/Ion Torrent) and provide long reads (threat to Pacific Biosciences) but still struggle with unacceptable error rates.

    Personally I am somewhat cautious about these major players as the price to earnings ratios are terrifying and growth limited by how much we are willing to invest in public research and healthcare. I would therefore be more interested in investing in growth companies operating within these major ecosystems, either with laboratory products or (perhaps even better) with software tools to deal with the massive data generated by next generation sequencing. Illumina is leading in this area and even operate their own App store called Basespace (https://www.technologyreview.com/s/540711/inside-illuminas-plans-to-lure-consumers-with-an-app-store-for-genomes/) which may generate some leads in this area.

    CRISPR is compared to NGS outside my area of expertise but with the current gold rush I think it may be very hard to find attractive investment opportunities on the stock market. The field is hyped and it is probably best if if you can find a publicly traded company which have ongoing operations giving them an expertise to capitalize on CRISPR. If it is a CRISPR oriented startup then it is likely to be an overvalued company looking for dumber money than the private equity sector which indicate a bad risk/reward ratio.

    1. Addition: My dream investment would probably be a genetics company that aim to help bringing NGS diagnostics into the healthcare sector. I prefer less “techy” stocks but if you can find something, then I would be glad to help analyzing it.

    2. Thanks for a great comment Aktieingenjören, you seem to know much more than me about this field. You circled in on what I also thought would be an interesting space, the software side of analyzing this massive amount of data, Illumina has a crazy high valuation, but I do like that they are working hard to stay ahead in this field.

      Interesting enough I’m not sure if the CRISPR companies are that hyped, or well, the hype has kind of died, when investors realize it might be a 5-10 year road ahead before the big profits potentially start to drop in. I see these companies as potentially investing in Illumina 10 years ago – 10 bagger stock, although with hindsight bias of picking the company that made it through these 10 years.

      1. I work with Bioinformatics which mean that I use the data generated by NGS. So I am closely affiliated with the field but not one of the foremost experts on the topic.

        The reason that I have not pursued the field myself for investment opportunities is that it is hard to find solid investment opportunities in my subfield (research). Adaptability is the key parameter so it in poorly suited for long term commercial development unless you are a hardware supplier like Illumina etc. But when NGS move into healthcare standardization is much more important so there investment opportunities areas likely to be better suited for the stock market.

    1. Thanks for the link.

      Yes totally agree, right now I’m in the excitement stage myself, since this a new field for me. I would prefer to just do research until I understand the field fully/deeply and then invest in the way where I believe I can capture some upside from the growth in this field.

      But that said, what I actually rather tend to do is do one investment to wet my appetite and give me the incentive to follow the sector/area. In the case of electric vehicles that stock for me became BYD, although I had the same time became very close to buying Tesla at 30 dollars (some issues with my broker and buying US stocks blocked me – bummer).

      In this case the valuations scare me, although its somewhat comforting not buying at highs at least.

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