Genetics: An exciting and investable theme
Depending on how long ago you last attended a biology lesson, messenger RNA (‘mRNA’) was probably not a term many of us would have been particularly familiar with a couple of years ago. That changed last year when the unprecedented speed at which several Covid-19 vaccines were developed put mRNA on the front pages.
The vaccines developed by companies including Pfizer/BioNTech and Moderna mark the first time this vaccine technology has been approved for use, but it is just one example of an application of a transformative branch of medicine called genomics. Genomics is the study of a living thing’s genome - its DNA. The pace of innovation in this field is not only changing and saving lives, but also offers compelling investment potential.
Background: What is DNA, mRNA and gene sequencing?
DNA is the blueprint of life and is found in almost every cell of the body. It is essentially a chemical code, sectioned into genes that determine our inherited characteristics.
DNA stores all of the genetic information in a series of only four nucleotides, the sequence of which determines the information needed to build the biological processes in the body. These nucleotides form pairs and are strung together to form the double helix structure with which we are all familiar. Proteins are the main output from this cellular machinery and are built from amino acids. mRNA copies the code and carries it to another area of the cell to produce these proteins. If any part of the code is missing, the gene could be mutated, causing genetic abnormalities or diseases.
DNA sequencing involves reading the letters of the code in the human genome like a book. We can use this to identify mutations. Being able to sequence DNA has revolutionised our understanding of diseases and medication.
The first human genome project – a massive global collaboration to sequence the first human genome which was achieved in 2003 – took 13 years and cost three billion dollars. As technology has advanced in the years since, the process has become increasingly cheaper and faster.
For example, when the first project was being developed, large, immobile devices were required for the sequencing. Today, sequencing can be done with pocket-sized devices, allowing for low-cost, real time sequencing in any location. Miniaturisation of the devices also allows for different applications, such as the analysis of pollen for biodiversity monitoring. Today, the equivalent of a human genome’s worth of data is sequenced every second at a cost of less than $1,000. This has enabled huge advances in the field of medicine.
Some key applications
As mentioned, mRNA vaccines – which trick the body into triggering an immune response to the virus’ spike protein without having been infected – are just one application of this technology. Some others are briefly outlined below, with all these areas representing potentially huge addressable markets.
Earlier diagnosis of cancers
Early diagnosis means a much higher survival rate. Genomics suggests the potential to develop new tests.
Case study - Exact Sciences: Colorectal cancer is the second deadliest cancer in the US, despite a 90% survival rate in cases which are caught early. This is because only 38% of colorectal cancer cases are diagnosed at early stage due to generally being symptomless until the disease is very advanced. Exact Sciences have developed a genomics-based at-home test with a 94% cancer sensitivity. There has been a material decline in death rates in colorectal cancers in the five years since the test has been available.
This means replacing traditional methods of biopsy during cancer screening with a blood test. We now know that as soon as a tumour develops, DNA from that tumour starts circulating in the blood. This offers the potential for future screening methods but is already being used in recurrence monitoring and treatment planning.
Understanding the genetics of a particular condition means being able to drug that specific mutation. This can be hugely impactful in treating cancers and rare diseases caused by a single mutation.
Case study – Spinal muscular atrophy: SMA is a devastating childhood disease caused by a genetic mutation which causes muscle wasting. By age three, many children require mechanical ventilators. Better understanding of the disease has led to three new treatments being approved in just four years:
- Biogen/Ionsis – developed a drug given to children at birth which has so far resulted in none of the children in the initial clinical study requiring mechanical ventilation by three years old.
- Avexis/Novartis – developed a gene therapy delivered as a one-time injection that gives the patient back the gene they are missing.
- PTC/Roche – developed oral therapy.
A number of diseases are caused by the over-production of a certain protein, particularly a mutated protein. Remembering that mRNA is involved in the middle part of the process between DNA and protein production, if we can use RNA interference (RNAi) to silence the RNA we can prevent that protein over-production.
Case study – Alnylam Pharmaceuticals: Alnylam has launched multiple products in this area where production of the mutant protein is turned off almost completely through a highly targeted approach generating a significantly higher success rate versus less targeted approaches. This offers the possibility of hugely improving quality of life for patients with perhaps only two injections per year.
This describes the concept of editing out or silencing the ‘wrong bit’ of the blueprint/code. This suggests the potential to cure diseases by removing or correcting the genetic cause.
The current investment opportunity
After a very strong year in 2020, the biotech sector has underperformed the broader healthcare market year-to-date. In fact, much of the performance over the last year was attributable to Moderna’s huge share price move. We believe current valuations make biotech look an interesting place to consider investing. Our preference is for the small/mid-cap part of the market, which has underperformed large-cap and is where most of the innovation occurs.
Longer-term, the investment opportunity in genetics is rooted in a continuous cycle of innovation. There are over 10,000 known diseases and treatments for only around 500 of them and it is only through a greater understanding of biology that we are going to significantly increase that proportion. Furthermore, potential applications go beyond genomics. There are a lot of ‘downstream’ processes in the chain from DNA to production of proteins. We are now seeing the industry pivot towards areas such as epigenomics, transcriptomics, proteomics, metabolomics, etc. This is why we believe this area offers very attractive long-term growth potential across a diverse and exciting opportunity set.