Investing in genetics stocks is a risky endeavour. But given industry specialists have and continue to describe this space as the future of medicine, the potential shareholder returns are undoubtedly impressive.
Following the outbreak of Covid-19, medical institutions, pharmaceutical companies, and even governments are realising the importance and applications of genomics – both from a diagnostic and treatment perspective.
Consequently, analyst forecasts of the already multi-billion-dollar genomics market predict immense double-digit annual growth over the next decade.
Needless to say, that could be a very lucrative opportunity. So, let’s dive into the details about investing in genetics shares.
What are genetics stocks?
Genetics stocks occupy a small section of the biotech industry. As the name suggests, these businesses focus on developing treatments for genetic diseases by repairing or replacing the faulty genes causing the problem.
The genomics industry isn’t particularly new and has been around for decades. But due to the high costs, commercialisation has been challenging and still remains that way today. However, thanks to recent technological advancements, development costs are falling drastically while simultaneously boosting accuracy.
Therefore, it’s no surprise that research into gene therapy has accelerated, with potentially game-changing treatments entering clinical trials both in the UK and abroad.
Genetics shares can be categorised into three segments:
- Sequencing & analysis – Companies analysing genetic data to detect defects in patients
- Testing & diagnostics – Firms using sequencing data to diagnose genetic diseases
- Gene editing – Biotech groups developing gene therapies that eliminate defects in the genome sequence
While there is some overlap in each category, firms within their respective segments often have different target markets and don’t necessarily compete with each other. However, the level of competition within each category is rising as more businesses seek to capitalise on the massive growth opportunity.
Unsurprisingly, this level of growth comes with a high volume of risk. The medical industry is highly regulated, with each test, device, and drug required to meet rigorous standards.
Drug development is particularly notorious for its difficulty. In fact, a study by the Biotechnology Innovation Organisation showed that only 9.6% of treatments that make it to phase one clinical trials actually reach the market.
So, it’s hardly surprising that most pure-play genetics stocks are exceptionally volatile. And in some cases, the failure of a clinical trial can be a death sentence for these businesses. But all it takes is one successful treatment to potentially unlock multi-billion-dollar annual revenues.
Top genetics shares in the UK
Let’s explore the top five UK genetics shares in order of market capitalisation.
|Oxford Nanopore Technologies (LSE:ONT)||Sequencing & analysis||Provides real-time genomic data analysis solutions used by scientific researchers in and out of the pharmaceutical industry.|
|Genus (LSE:GNS)||Sequencing & analysis||Provides selective breeding services to the animal agriculture industry based on desirable genetic traits.|
|Ergomed (LSE:ERGO)||Testing & diagnostics||Assists larger pharmaceutical companies throughout clinical trials of gene and cell cancer therapies.|
|Oxford Biomedica (LSE:OXB)||Gene editing||Provides a proprietary drug development platform for larger pharmaceutical companies to develop gene and cell therapies at a significantly lower cost.|
|ReNeuron Group (LSE:RENE)||Gene editing||An early-stage drug developer using stem cells to discover new cures to both genetic and non-genetic diseases.|
Oxford Nanopore Technologies
Oxford Nanopore was spun out of the University of Oxford in 2005. Since then, the business has become one of the UK’s largest genetics stocks, developing a proprietary DNA and RNA sequencing technology. It’s the first one of its kind to provide real-time data analysis and rapid testing.
This technology has been embedded into a variety of devices which the group primarily sells to scientific researchers involved with clinical trials. However, management has also been broadening its horizon, targeting several applied markets.
The list includes consumer healthcare with its Covid-19 rapid testing solution, agriculture by identifying superior plant genomes, and even the environment by analysing the microbial composition of glaciers.
Genus is a world-leading genetics sequencing business that focuses on the animal agriculture industry. The company owns directly (and indirectly through partnerships) various herds of pigs and cattle. Using its sequencing technology, the group tests and identifies key desirable traits among the herd, such as feed efficiency, disease immunity, protein and fat content, and fertility.
Management then generates revenue by selecting the animals with the strongest genetic profile for breading with farmers’ herds. The end result is healthier offspring, lowering costs for farmers while simultaneously increasing the quality of the end product for consumers.
Ergomed is a global contract research organisation (CRO) that works directly in partnership with drug developers. Running clinical trials is challenging, and pharmaceutical giants often turn to CROs like Ergomed for their expertise.
This genetics stock doesn’t own any proprietary technology within the genetic editing space. However, it does have a long track record of providing support services for cell and gene therapy clinical trials in oncology (cancer) research.
The group charges its customers on an ongoing basis. With more genetics shares entering the arena, demand for its services has been steadily climbing over the years.
Oxford Biomedica is a rising gene and cell therapy business specialising in viral vectors. In oversimplified terms, the company re-engineers existing viruses to deliver improved genetic material into patients’ cells.
Management is using this technology to develop its own treatments. However, management also outsources its capabilities to other drug developers via its LentiVector platform.
This drastically reduces the cost of developing gene and cell therapies. So, it’s not surprising that pharmaceutical titans like Bristol Myers Squibb, AstraZeneca, and Novartis are all active customers. These customers pay ongoing milestone fees throughout development, as well as a royalty on sales for any drug that makes it to market. However, it’s worth noting that most of the current drug pipeline using LentiVector remains relatively early stage.
ReNeuron is a specialist in stem cell therapy. Using its proprietary Exosome Technology platform, the company can deliver payloads of critical proteins such as siRNA, mRNA, and genetic materials to patients.
The technology has proven to be quite promising. However, unlike its peer genetic stocks, this business remains firmly in the early-stage portion of its lifecycle. Today, ReNeuron has two flagship assets, both in phase two clinical trials. One is for treating retinitis pigmentosa, a progressive disease that leads to blindness. And the other is for repairing damage after a stroke.
Investing in the US genetics industry
American genetics stocks have to navigate an equally complex regulatory environment. In the UK, all medical treatments and tests need to be approved by the Medicines & Healthcare Regulatory Agency (MHRA). In the US, approval is required by the Food & Drug Administration (FDA).
The US stock market has plenty of genetics shares listed. Here are some of the leading businesses in this space in order of market capitalisation:
- Illumina (NASDAQ:ILMN)
- CRISPR Therapeutics (NASDAQ:CRSP)
- Fulgent Genetics (NASDAQ:FLGT)
- Pacific Biosciences of California (NASDAQ:PACB)
- Editas Medicine (NASDAQ:EDIT)
Are genetics stocks right for you?
The world of genetics stocks is a highly volatile place. Just looking at these five UK genetics shares demonstrates that perfectly.
Needless to say, individuals thinking about investing in genetics stocks need to have a high risk tolerance. While genetic research may have been around for decades, the same can’t be said for most of the stocks listed today. And odds are most will fail in their quest to capture the multi-billion-dollar market opportunity.
That’s why we recommend taking a diversified approach. By owning a basket of companies in this area, the odds of finding the future industry leader climb higher.
Zaven Boyrazian owns shares in Oxford Biomedica. Zaven Boyrazian’s mother is an employee of Bristol Myers Squibb involved with clinical trials.