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46 and You: Genetic Testing = Giant Growth Market

I recently wrote a special report for Zacks Ultimate members where I picked my favorite stock to double in the next year. Here's an excerpt...

Invitae NVTA is the $1.7 billion game-changing genetic diagnostics company that is like a “Little IlluminaILMN in terms of its proprietary genotyping technology and “network effects” in patient and care-provider medical information.

Both companies are leaders at their respective levels/markets in what is called Next Generation Sequencing (NGS). From the FDA guidance document on NGS in April 2018...

In the past decade, the cost of sequencing a whole genome has dropped 1000-fold, and the number of genetic tests has risen to more than 55,000 for over 11,000 conditions. Rapid adoption of NGS technology in medicine has led to the identification and curation of novel genetic variants that promise to improve diagnostic accuracy and reduce unnecessary healthcare costs.

Without question, we have witnessed the greatest impact of genomics in oncology and cancer therapy. The diagnosis and management of several types of cancer – Hodgkin’s lymphoma, breast cancer, and chronic myeloid leukemia - have made remarkable advances thanks to DNA sequencing technology. NGS has also benefited other fields like cardiovascular medicine.

Based on Invitae’s quality growth trajectory into a very large TAM (total addressable market), I believe that NVTA shares will double in the next 12-18 months to the $35-40 area. Investors should continue accumulating shares in the upper teens. If you already have a partial position, consider waiting to see if shares will fill the Feb 20 gap down to $16.50.

But I’m not even as optimistic as CEO Sean George who said in an interview in November that his goal is “to build a five to ten billion company over the next 3-5 years. I’d say that’s exactly where we are going. The faster we can do that the better. It’s very clear to us. That’s the head set.”

(end of excerpt from my "Invitae to Double" report)

In the video that accompanies this article, I introduce both companies and several of their peers in genomic diagnostics including Pacific Biosciences PACB and Guardant Health GH. More on these companies in a moment.

What I didn't emphasize enough in the video, though, was how big the potential market is for genetic testing.

Not only does Illumina design a nearly $1 million machine that is used for most genome sequencing and sold to biopharma companies, universities, and other genetic research labs, they also provide the science behind most of the consumer testing kits.

Their technology is largely responsible for the massive drop in the cost of sequencing and Invitae is one of their big customers for testing. Together, the two companies are staring into a massive market opportunity.

Consider that if only 500 million people across North America, Europe, and Asia seek some form of medical-grade testing in the next 5 years at an average cost of $250 -- not merely the genealogy versions that cost only $99 -- that could equal $125 billion in revenue for these companies.

Currently, Illumina is on track to cross $4 billion in revenues in the next year, while Invitae is just on pace to break $300 million in trailing 12-month sales for the first time by next June.

Even if you cut my estimate of the TAM in half to ~$60 billion, that's still a huge market opportunity for both companies. And when you listen to these companies, especially Invitae CEO Sean George, you hear them describe a birth-to-death lifecycle of potential genomic testing for health-conscious consumers.

And Invitae is developing many types and levels of medical inquiry for genomic insights, some that cost north of $500 for precision testing of specific genetic conditions.

In short, the average person could be a customer for several tests in his or her lifetime, whether self-initiated or ordered by their doctor.

I became more interested in Invitae this April after the company just got some great news from giant health insurer United Healthcare who chose Invitae as just one of seven labs covered in a new group of diagnostics providers called the Preferred Laboratory Network (PLN).

This means insurance providers are becoming medical advocates of genetic testing because it helps doctors with screening, diagnosis and early detection of health issues for their patients, which saves money for everyone in the healthcare value chain.

I expect there also to be a rise in government-sponsored campaigns to raise awareness of the value of genetic testing, encouraging citizens to be more proactive with increasingly available and affordable screening options.

Illumina's Planned Buyout of Pacific Biosciences Runs Into Opposition

On June 18, Reuters reported "Britain’s competition watchdog said on Tuesday the planned $1.2 billion merger between gene sequencing company Illumina Inc and smaller rival Pacific Biosciences of California Inc may be a threat to competition in the country."

Pacific Biosciences PACB specializes in a type of sequencing called "long-read" which offers a comprehensive view of genomes, transcriptomes, and epigenomes. Its single molecule, real-time -- or SMRT technology -- is an integrated platform for genetic analysis that uses the natural processing power of enzymes, combined with specially designed reagents and detection systems, to record individual biochemical events as they occur.

On November 2, ILMN announced it would acquire PACB for $1.2 billion to fill a gap in its technology offerings. The sequencing market centers around the short-read technology from ILMN, which is both fast and economical. But the long-read technology caters to more applications and more accuracy, albeit at a slower speed and higher price tag.

Some analysts like the team at Leerink believe that the PACB technology costs 12-15 times more vs ILMN, citing $1,000 for a full genome on ILMN vs $12,000 on PACB. In explaining its rationale for the buyout, ILMN management said it sees the long-read market opportunity to expand from $600 million in 2017 to $2.5 billion by 2022.

While the UK snag raised uncertainty for both companies, it certainly creates opportunity for others. In the video, I discuss the other potential M&A that could heat up in this space, including potential suitors for NVTA.

Health Information for the Journey of Life

Two more companies I discuss are Guardant Health GH and Natera NTRA. GH is an $8 billion provider of proprietary blood tests for cancer, including multiple liquid biopsy-based tests.

Natera also harnesses the power of patient DNA info from a single drop of blood. They are pioneers in non-invasive prenatal screen (NIPS) which uses a blood sample from the mother’s arm to analyze DNA from the placenta for certain chromosome conditions, like 22q, as early as 9 weeks.

Panorama, their testing platform, is the leader in non-invasive prenatal screening for 22q, with the highest commercially available accuracy for the most common 22q11.2 deletion.

22q11.2 deletion syndrome, or DiGeorge, is caused by missing genetic information on chromosome 22. 22q occurs in an estimated 1 in 2000 births, which makes it almost as common as Down syndrome.

NIPS is also a big growth area for Invitae who announced this week their acquisition of privately-held Singular Bio for $55 million to help increase access to genetic screening in early pregnancy.

The deal gives Invitae access to Singular's developing single molecule detection technology that enables lower costs and expanded use of high-quality, cell-free, nucleic acid analysis, initially for application in NIPS. From the Invitae press release...

Supporting Wider Availability of Screening in Early Pregnancy

As the utility of genetic information expands, particularly in pregnancy and reproductive health, demand for high-quality and highly affordable testing grows with it. NIPS is conducted in early pregnancy to detect chromosomal abnormalities and assess the health of the fetus via a simple blood test.

Invitae introduced its NIPS services earlier this year and recently announced reduced patient-pay pricing of $99 to improve access to testing for the six million pregnancies in the United States each year. Historically, these tests have been expensive, and therefore offered only to women in certain elevated risk groups. By investing in technologies, including those developed by Singular Bio, Invitae is driving down the cost of testing to increase the number of women who can benefit from the use of NIPS testing in early pregnancy.

(end of press release excerpt)

Be sure to watch the video that accompanies this article for more details on this exciting new industry and why I own two of the companies in particular right now.

Disclosure: I own shares of NVTA and ILMN.

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Invitae Corporation (NVTA): Free Stock Analysis Report
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Natera, Inc. (NTRA): Free Stock Analysis Report
Guardant Health, Inc. (GH): Free Stock Analysis Report
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