Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation.
The quest to eliminate disease, expand human potential and extend life has been a preoccupation for scientists, philosophers and alchemists throughout the ages. Now, with the emergence of genetic sequencing and the subsequent power to test genes, the ability to manage more accurately not only patients’ illnesses but also to test their predisposition to illness is increasingly becoming a reality for many, especially as the costs of doing so continue to fall. The age of personalised medicine, where healthcare is essentially customised with decisions and practices being tailored to individual patients by use of genetic and other information could soon be upon us. It is also clear that the imminent potential revolution in medical practice will inevitably create a number of clear investment opportunities.
It is easiest to begin with a basic biology primer. First, consider DNA (or deoxyribonucleic acid, to give it its full scientific name) as constituting the ‘instruction manual’ for all living cells. A complete set of DNA for any organism is referred to as its genome. The human genome comprises 23 paired chromosomes (organised structures of DNA found in cells) with six billion items of code, three billion inherited from each parent. Everyone has a unique set of DNA, which differs in countless ways from others, the diversity being a function of ‘errors’ arising and accumulating when the code is passed from one generation to another via reproduction. In humans, genetic variation accounts for many of the physical differences we see (such as height, hair colour etc.), but more importantly, these discrepancies can have medical consequences including disease susceptibility. They can also impact an individual’s response to certain drug treatments.
Although less than 1% of the human genome differs between individuals, understanding these differences holds the prospect for great advances in disease prevention and treatment. Current medical practice tends to be reactive, with treatment/ medication commencing after the concerning signs and symptoms appear. But, based on the information derivable from genetic screening and testing, future medical practice may become substantially more proactive. In particular, such an approach can help in four key respects: identifying people with predispositions for a particular disease; detecting whether a person has a disease, often at earlier stages of the illness than was previously possible; ascertaining the effectiveness of a particular drug therapy for an individual; and, describing the precise nature of a disease including its condition severity.
The molecular diagnostics market is already big business, worth $5bn in the US alone according to UnitedHealth Group, a leading insurer. Despite genetics having been established as a major discipline at the end of the 19th Century and the structure of DNA being first determined in 1953 (by Crick and Watson), the initial DNA sequences – with the entirety of an individual’s information – were not obtained until the 1970s. However, it is only in more recent times that the technology for sequencing has evolved to such a level to make it economic. Put another way, just a decade ago, it cost around $80m to sequence a human genome, based on data from the US body, the National Human Genome Research Institute (NHGRI). It was hence the preserve of specialised academic and government research centres. Even five years ago, the cost remained exorbitantly high, at close to $9m. By contrast, today the cost is only $1000.
Data throughput and the cost of DNA sequencing are currently improving by a factor of 10 every 18 months. As a result, a sequencing machine today would cost a surgery or hospital as little as $50,000, fit comfortably onto a desk, and be able to read 10m letters of genetic code with a high degree of accuracy in only two hours. As of the end of last year, around 30,000 genomes had been sequenced, according to the NHGRI. By 2014 it estimates that the figure could be 1m. The world’s largest genomics research centre, the BGI, based in Beijing, operates 167 sequencers and is currently generating around 2,000 human genomes a day. Given the speed with which the technology is evolving, many in the industry expect that the era of the $100 genome will soon be imminent.
It is against this background that the molecular diagnostics market is set to expand at least threefold and potentially fivefold (i.e. to between $15bn and $25bn) by the decade’s end, on calculations made by the UnitedHealth Group. At present, around 1,200 genetic tests are currently available for approximately 2,500 conditions, with several new tests being introduced each month. UnitedHealth alone insures 36m people in its medical plans and spent $500m on genetic exams last year, primarily to detect cancers and infectious diseases such as HIV. Norway is set to become the first country in the world to incorporate genome sequencing into its national healthcare system, planning to purchase over 1,000 sequencers to test for cancers and patients’ subsequent drug responsiveness in the initial phase of its programme. Smaller scale projects are currently being undertaken in a number of other countries presently, including the UK and France.
Such initiatives may just be the tip of the iceberg, particularly for governments committed to austerity programmes that place limits on the growth of healthcare expenditure. Genome sequencing and its corollary, personalised medicine, are inherently efficient. Some studies suggest that the total cost of ineffective drugs and their side-effects, resulting hospital admissions, lost productivity and premature death cost the US alone at least $100bn annually. Other statistics also support the case for current inefficiency in medical practice: the FDA (Food & Drug Administration, the consumer watchdog in America’s healthcare system) believes that the average cancer drug works in only 25% of cases, while leading diabetes drug manufacturer Novo Nordisk estimates that around 30% of people who have diabetes are not even aware of it, resulting in significant (more than $60bn) of unnecessary healthcare costs. Doctors also favour the increased use of genetic testing, with around three-quarters of those surveyed by UnitedHealth Group stating that such testing allows for more personalised medical decisions and a more targeted choice of therapy. Moreover, some 63% say that its gives them the ability to diagnose conditions that would otherwise by unknown.
As compelling as this world view appears (and optimists even discuss the idea of rescue workers in developing countries using portable sequencers to track down viruses responsible for epidemics, or airport officials taking samples from travellers to identify infectious diseases before they become potential outbreaks), there are three major limitations – practical, moral and behavioural – that bear serious consideration. Taking the practical first, while the charge may be only $1,000 to sequence a genome, the cost of analysing the data, is significantly more (at around $10,000 currently), requiring both researchers and relatively sophisticated software. There may simply be insufficient trained experts able to analyse the data appropriately. A related issue also concerns the cost of storage, with a fully-sequenced genome resulting in about 100 gigabytes of raw data (equivalent to approximately 100,000 high resolution photos). By the time the genome has been analysed, the volume of data rises to roughly 1 terabyte (i.e. by 100,000 fold).
From a moral and ethical standpoint, the results produced by such tests may not always be straightforward, making them challenging to interpret and explain, producing feelings of anger, anxiety, depression and guilt among others. Some advocate a ‘right not to know’ as being fundamental and inalienable. Others also fear that the outcomes of such tests may result in potential discrimination either when applying for a job or in seeking insurance policies. Finally, there is a well-regarded school of thought which asserts that behavioural modification would prevent more illness than seeking to link specific genes to the cause of disease. Research from the University of Oxford suggests that three behaviours (poor diet, smoking and lack of exercise) cause 50% of the world’s deaths. Behavioural change may therefore have a greater impact on the overall health of the population than personalising therapies for individual patients.
Despite these concerns, industry development continues apace. US-listed Ilumina and Life Technologies are in the vanguard with regard to producing tools for sequencing DNA. Illumina’s MiSeq entry-level product retails for a list price of $125,000, while Life’s Ion Proton machine can be purchased from $50,000. Both companies have substantial patent portfolios and healthy order books. Indicative of the importance many in the healthcare industry attach to the potential for genetic sequencing, Roche offered $5.7bn for Ilumina earlier on this year (a 30% premium to its pre-bid price) and although the deal fell through, it seems likely that Ilumina may receive other offers in the future. Roche, GE (the world’s largest producer of medical-imaging equipment), Siemens and Novartis have all indicated that they are keen to expand their presence within the molecular diagnostics field. Beyond Illumina and Life Technologies, there are also a number of smaller players involved in the testing and diagnostics fields including Genomic Health, Myriad Genetics, Complete Genomics, Cepheid and Qiagen. There are also numerous unlisted businesses such as DNA Nexus and NextBio.
An alternative investment perspective would be to consider the necessity for storing sequenced DNA data. We have written previously about the inexorable deluge of data across all industries and it is notable that EMC, for example, has recently been growing sales of its products to the life sciences sector. Nvidia has also seen increased sales of its graphical processing chips to industry players (including BGI, the world’s largest), that help reduce analytics time from days to hours. Elsewhere, IBM is said to be working on a ‘DNA Transistor’ that could help lower the cost of sequencing genomes towards the $100 price point.
Industry activity is indicative of the growing importance of genetic testing. The logic attached to the development of a more personalised approach to medicine is potentially persuasive. Far from it being the realm of science fiction, genetic testing could change not only who we are but how we live. While the consequences are perhaps not fully considered, progress is clearly continuing apace. Volatility in the share prices of many of the companies mentioned above suggest that future evolution of the market for molecular diagnostics may be far from linear, but as with the opening of Pandora’s Box, it will now be hard to turn back from this new era of medicine.
Alexander Gunz, Fund Manager
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