Fun & Shoals - The Case of Biotech
Financials can be Fun & Shoals of (not herrings but) airings - of Grievances & Opportunities.
As exemplified by the XBI SPDR S&P Biotech ETF (see below), since January 1, 2021, Biotech has been caught in a severe downtrend, losing about half of its value. It has started to rebound. Can it keep the momentum going?
XBI Stock Chart
In most likelihood, yes.
A number of large companies in the big pharma/biotech sector [Pfizer (PFE) after its COVID success, Novartis (NVS) after selling its 20% stake in Roche, Moderna (MRNA), etc.] are flush with cash and may use it to acquire smaller firms, at a time when lots of biotechs are rather cheap, if not well-undervalued.
Meanwhile, new innovations like artificial intelligence and machine learning, messenger RNA, CRISPR gene editing, precision medicine, synthetic biology, etc. are likely to gain more traction in the marketplace. The innovation ecosystem may catalyze the rate of drug discovery and commercial success and draw more and more interest.
The fight against cancer is one area of great promise. Genetics may boost cancer therapeutics by targeting specific cells, thus optimizing remediation. Even a Moderna may seek to apply its mRNA technology to the field. The stock has been consolidating after its huge COVID-induced rally, and may even revisit the $100 level (thereby filling the gap, see graph below), given the market's current vagaries. But its growing pipeline soon to target cancer and other diseases, should have it rebound dramatically when new pipeline assets hit major milestones - and revisit its all-time-high in a few years. Reaching a $1,000 share price is not out of the question within the next decade or so.
Moderna Stock Chart
Alzheimer's is another area of great promise, and possibly one the most challenging, as few clues yet exist as to how to eradicate the disease. Biogen may use cash at hand to acquire pipelines in the field, as its homegrown therapies have yet to gain traction, and small rivals with promising pipelines run out of cash.
Genome editing allows a number of firms including Intellia Therapeutics (NTLA), CRISPR Therapeutics (CRSP), Beam Therapeutics (BEAM), and Editas Medicine (EDIT), to develop curative therapeutics using Clustered, Regularly Interspaced Short Palindromic Repeats/CRISPR associated 9 (CRISPR/Cas9) technology. CRISPR/Cas9 is a solution deployed for genome editing, the process of altering selected sequences of genomic deoxyribonucleic acid (DNA). Intellia, for example, leverages its modular platform to advance therapies including its in vivo candidates, NTLA-2001, for the treatment of transthyretin (ATTR) amyloidosis, and NTLA-2002, for the treatment of hereditary angioedema (HAE). The Company is also developing ex vivo applications including a wholly owned T cell receptor (TCR)-T cell candidate, NTLA-5001 for the treatment of acute myeloid leukemia (AML) and hematopoietic stem cells (HSCs) for the treatment of sickle cell disease.
Intellia (NTLA) Stock Chart
Another sector worth considering is synthetic biology, where Amyris (AMRS) and Ginkgo Bioworks (DNA) lead. Check out https://seekingalpha.com/article/4540718-ginkgo-bioworks-is-a-strong-buy, an article we contributed on Seeking Alpha, for some detail on opportunities in this promising sector.
Amyris (AMRS) Stock Chart
Ginkgo Bioworks (DNA) Stock Chart
Artificial intelligence and machine learning may also drive a major wave of innovations and commercial success down the road. Schrödinger, Inc. (SDGR) has developed a physics-based software platform, which enables discovery of molecules for drug development and materials applications. The Company's software transforms drug discovery across the life sciences industry, as well as various processes in the materials science industries. The drug discovery segment is focused on building a portfolio of preclinical and clinical programs, internally and through collaborations. Schrödinger's physics-based computational platform leverages a deep understanding of physics, chemistry, and predictive modeling to accelerate innovation. The computational platform lets customers explore chemical space and predict molecular behavior with a high degree of accuracy. Schrödinger’s Materials Science Suite includes a fully integrated, powerful cheminformatics platform, which provides a wide range of physicochemical descriptors, 400+ topological and functional group descriptors, binary and proprietary dendritic fingerprints, and extensive learned models; including Kernel-based partial least square (KPLS) regression.
Shroedinger (SDGR) Stock Chart
The days of deep undervaluation of biotech and other growth stocks shall one day pass. When they do, expect the shares of some of these innovators to roar back up.
Due diligence is highly recommended.
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