Is It Time to Test Your Baby's Genetics?

You're expecting. Got the baby crib? Check. Diapers and baby formula? Check. More diapers? Check. A prenatal, non-invasive test with high sensitivity and specificity that looks for genetic abnormalities or predispositions to certain diseases for Junior? Ugh.

It may seem a little foreign now, but one day parents may opt to check up on the genes of their unborn son or daughter on a routine basis. Today the tests are used almost exclusively in a small subset of pregnancies, although they are quickly expanding into broader applications. The market opportunity -- and potential disruption to health care as we know it -- is enormous. Why use these tests? Who are the players? What is the likely path forward? Let's take a brief look at the nascent industry.

Gotta start somewhere
Why use a prenatal genetic test in the first place? Well, initially they can be used in lieu of invasive diagnostic procedures that could result in pregnancy loss for high-risk women. For instance, a doctor may suggest that a woman over 35 years old with family history of chromosomal diseases (i.e., a high-risk pregnancy) undergo testing to determine whether her unborn child has fetal aneuploidy, or an abnormal amount of chromosomes. These include chromosomal disorders such as Down syndrome.

There is simply no debating that non-invasive genetic tests are a much safer first option. Each year in the United States, as many as 800,000 pregnant women could be considered high-risk, according to the American Congress of Obstetricians and Gynecologists. With the risk of miscarriage for invasive amniocentesis and chorionic villus sampling procedures as high as 2% and 0.5%, respectively, women now have a way to potentially avoid the risk altogether. Moreover, a study conducted in 2001 concluded that knowing the genetic status of a baby before birth was beneficial to mothers.  

Playing to win
The market for prenatal genetic testing has been riding advancements in gene sequencing for the past several years and will continue to do so as costs fall further. While we aren't yet able to cast aside invasive procedures for good, several companies have developed tests that are incredibly sensitive for certain disorders. For instance, Verifi from Illumina (NASDAQ: ILMN  ) is nearly perfect in determining Down Syndrome. The test has a sensitivity of close to 100% and a specificity of 99.8% for detecting the disease. Even then, invasive tests are needed for a positive result.

What other companies are innovating in the space?

Company

Non-Invasive Prenatal Test

Illumina (Verinata)

Verifi

Sequenom (NASDAQ: SQNM  )

MaterniT21 PLUS

Quest Diagnostics (NYSE: DGX  )

Panorama*

Ariosa Diagnostics

Harmony

*Developed by Natera, offered by Quest Diagnostics nationwide. Source: Company websites      

The market for chromosomal prenatal tests is still in its infancy (no pun intended), but the domestic market opportunity of about 800,000 patients will surely expand as tests begin to detect more and more diseases. To give you an idea of where the market is, consider that Illumina just acquired Verinata and the Verifi test in January. That followed the acquisition of another molecular diagnostics company, BlueGnome, last September. Investors and the company are hoping that the fast-growing market can help bring back the high growth days of years past. So far, so good.

Similarly, Quest Diagnostics inked a deal earlier this year to offer Panorama from Natera at its locations nationwide, but it will take some time to see the translation to the top line. The test has only been available since April. Given the company's presence in the health-care industry, however, the deal could become a major catalyst for other tests making headway on the market by increasing awareness for prenatal tests in general. 

Sequenom is another prime example of that high growth. The company's molecular diagnostics segment contributed 52% of total sales in 2012 -- up from just 15% in 2011 -- and grew 458% year over year after the launch of its MaterniT21 PLUS test in October 2011. Shares of the company took a beating after second-quarter results fell short of analyst expectations, but sales still grew 91% compared with a year ago. Still, investors will want to see revenue growth translate into a profitable future -- something that doesn't seem fathomable anytime soon.

Foolish bottom line
The tests serve a niche role at the moment, although the potential market opportunity is huge. In fact, it may one day be possible to screen unborn babies for genetic predispositions for intelligence, obesity, cognitive disorders such as autism, and much, much more. The Holy Grail of a confirmatory non-invasive test (i.e., one that doesn't require a potentially risky invasive procedure) still eludes scientists (and perhaps regulators), but I have complete faith that such hurdles will be crossed eventually. The rewards on the other side are simply too great to ignore.

Prenatal genetic tests could serve as a high-growth product for several well-positioned players. That's great news on two fronts, since your financial health is just as important as your personal health. The Motley Fool's special free report "3 Stocks That Will Help You Retire Rich" names specific investment opportunities that could help you build long-term wealth and help you retire well. The Fool also outlines critical wealth-building strategies that every investor should know. Click here to keep reading.


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