Simon Clements

Investment opportunities in DNA sequencing

Simon Clements

This article was issued by ATI and published on 21 June 2016.

Simon Clements, investment manager on the ATI Sustainable Future fund team explains how he is capitalising on exciting developments within the DNA sequencing space.

An interesting prospect for long-term, forward thinking investors like ATI is companies in the medical science and technology sectors that are developing groundbreaking technologies and treatments. A particularly exciting area is DNA sequencing, which is advancing rapidly and suggesting greater and greater possibilities for patients and investors.

The cost of DNA sequencing has reduced dramatically over the past 15 years. The first human genome was sequenced in 2000 at a cost of US $2.7 billion (£1.9 billion)(1), however today it is possible to do it for just a few thousand dollars. This increased accessibility is paving the way for a myriad of new applications that could help to prevent disease and improve the quality of life for millions of people across the globe.

It is possible that over the next decade the cost of DNA sequencing could decline to a point at which it becomes ubiquitous. With less than 0.01% of the global population sequenced to date (just 228,000 of a potential 7.4 billion)(2), we think that there remains considerable future growth potential for manufacturers of DNA sequencers and related products. Industry leader Illumina and its main rival Thermo Fisher – which we hold within our Sustainable Future fund range – are both well positioned to take advantage of this.

Immediate applications

Only about 0.1% of our genomes are different to each other. Understanding these variations and how they relate to potential diseases is an area of significant interest and may be the key to identifying treatments for complicated diseases including asthma, diabetes and Alzheimer’s.

One of the first and most rapid adoption settings for DNA sequencing is in pre-natal testing relating to down’s-syndrome. Existing tests involve extracting foetal cells from the placenta or amniotic fluid via a large needle; a highly invasive procedure that carries a risk of miscarriage. The non invasive screen involves taking a blood sample from the mother, as the foetus sheds DNA into the mother’s bloodstream. This procedure is currently chosen by around 50% of mothers in the US that are categorised as high risk and its adoption is expected to follow throughout Europe and the rest of the world.

Within oncology, the genetic mutation responsible for the growth of cancerous tumours is now frequently being identified, as is how a tumour evades the immune system. This is a significant development from simply being able to locate the cancer in the body. Importantly, this is leading to a more personalized approach to treatment through which drugs are being designed to target the specific mutations that have caused the cancer in an individual.

Leaders in oncology with broad portfolios that could potentially combine therapies include Roche, Novartis, Bristol Myers Squibb, Astra Zeneca and Merck. These should all do well, however there are also some interesting smaller companies developing innovative new therapies such as Incyte and Celldex Therapeutics.

DNA sequencing is also driving innovation in cardiovascular medicine. A study published in the New England Journal of Medicine showed that over a 15 year period individuals with loss of function mutations in the gene that codes for a particular protein known as PCSK-9 had 29% lower levels of LDL cholesterol and an 88% reduction in the risk of coronary heart disease (3). Several companies are developing drugs that target PCSK-9 that could potentially be approved by regulators this year.

Companies at the vanguard of population genetics such as Amgen and Regeneron should have a first mover advantage. We hold American multinational biopharmaceutical company Amgen within the Sustainable Future funds. A leader in the development of a number of cutting edge treatments, Amgen’s shares have risen 163% over the five years to 16 June (4). While this lags the Nasdaq Biotechnology index over the same period, it is well ahead of the 63% returned by the MSCI World index (5).

Future potential

There is significant future opportunity for companies developing drugs targeting rare diseases including Alexion, Shire Pharmaceuticals and Vertex. Alexion, which we hold in the Sustainable Future funds, is a leader in the area of ultra rare diseases. These diseases are so rare that the biggest challenge for doctors is identifying them. DNA sequencing has the potential to help us identify patients at risk of ultra rare diseases through their DNA print, rather than through symptoms. This expands the market for companies like Alexion, whose share price has grown by 180% over the five years to 16 June (6) and in which analysts still see more than 70% potential upside (7).

The use of DNA sequencing is not limited to human medicine. DNA sequencing is also used in areas such as enzyme DNA. Enzymes are biological catalysts that are used in applications ranging from laundry detergents to the manufacture of biofuels and food production. Enzyme producers such as Novozymes, which we hold, are leveraging this technology to accelerate the development of enzymes unique to their customer’s specific requirements.

Reading and understanding DNA is also only the first step in this fascinating journey. The next step is writing DNA. Gene editing technologies may enable us to replace faulty DNA, enabling cures for genetic diseases such as sickle cell anaemia. This could also potentially lead to creating synthetic organisms that produce bio fuels. Indeed, American biotechnologist and geneticist Craig Venter has already created the first living organism with a synthetic genome (8).

When the human genome project began there were only a few diseases for which we understood the genetic cause. Today we know the genetic basis for thousands of genetic diseases. Sequencing has driven rapid progress in our understanding and we believe this will lead to the development of more effective treatments for serious diseases and increased opportunities for application in other areas, which will drive returns for early investors.






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Monday, June 20, 2016, 11:00 PM