There are 6,000 disorders caused by faulty genetics. Thanks to new technology, revolutionary new gene therapies are beginning to be developed to treat them. Do you own stocks that can benefit from this game-changing approach?
Many companies are involved in making the machines used to sequence genes, using genomics to discover new treatments, and screening patients to determine appropriate healthcare. I think the best genomics stocks to buy now are Illumina (NASDAQ:ILMN), bluebird bio (NASDAQ:BLUE), and Invitae (NYSE:NVTA).
Making the machines
Illumina is the largest manufacturer of systems used to sequence genes, and that makes it critical to biopharmaceutical companies engaging in gene therapy research and healthcare companies embracing genetic screening of patients to determine appropriate treatments.
The company's innovations in short-read gene sequencing have been instrumental to reducing the cost and time associated with genetic discovery. As a result, customers have installed more than 13,000 of its sequencing systems in their research labs. Illumina's newest system, the NovaSeq, has lowered the cost of gene sequencing to below $1,000 for the first time. In the future, Illumina expects costs to fall to as little as $100 per sequence, opening the door to research otherwise deemed too risky or unaffordable.
Cheaper, faster genetic insight has been a boon to Illumina's system sales, and that's driving demand for the high-margin consumables they use. Illumina's revenue was $3.3 billion in 2018, up 21% from $2.7 billion in 2017, and management expects $3.8 billion in sales in 2019. NovaSeq has already achieved $1 billion in shipments in just two years.
The company's nicely profitable, too. Management is guiding for non-GAAP earnings per diluted share of $6.50 to $6.60 in 2019, up from $5.72 in 2018.
Illumina announced plans in November to acquire PacBio, a competitor that's developed a different technology allowing researchers to conduct long-read sequencing. Adding PacBio's long-read products to its existing lineup gives Illumina the most comprehensive sequencing offering out there. Illumina's also embracing initiatives that could drive meaningful growth in the future. For example, it owns 19% of Grail, a company that's using Illumina's machines to develop a blood test that can catch cancer in its earliest stages.
Crafting gene therapies
Roughly 700 gene therapies are being evaluated in approximately 1,800 clinical trials, according to Informa Pharma Intelligence's Trialtrove database, and about 500 of them are mid- to late-stage studies. Using genetic sequencing to identify genetic mutations to target and inactivated viruses to deliver genetic fixes that can correct for those mutations represents one of the biggest advances in medicine in decades.
Many companies are involved in this research, but only a handful have gene therapies that have successfully completed studies enabling filings for regulatory approvals. One of the most intriguing of these companies is bluebird bio, a biotech that has a slate of late-stage gene therapies approaching the finish line.
The company's most advanced therapy is Zynteglo, formerly LentiGlobin, for use in transfusion-dependent beta-thalassemia. Patients with this genetic disorder are unable to produce adequate hemoglobin, requiring a lifetime of frequent blood transfusions that can cause organ damage. Zynteglo restores hemoglobin production by adding a functional copy of the B-globin gene to a patient's own blood stem cells, removing the need for donor stem cells.
In March, a key European advisory committee recommended Zynteglo's approval based on compelling trial data. The therapy allowed 80% of people with an amenable makeup to achieve transfusion independence, or freedom from transfusion for at least one year. An official decision from European regulators on Zynteglo is expected in the second quarter of 2019.
Additionally, bluebird bio is developing bb2121, a chimeric antigen receptor T-cell gene therapy (CAR-T) for multiple myeloma that's expected to read out data later this year. If the results are good, bluebird bio thinks it could secure a Food and Drug Administration (FDA) OK in 2020. A bit further back in its pipeline are Lenti-D for a rare genetic disorder, cerebral adrenoleukodystrophy, and the use of Zynteglo in sickle-cell disease. If all goes well, management thinks Lenti-D could win approval in 2021, and Zynteglo could get a green light in sickle cell disease in 2022.
Performing genetic screening
Falling sequencing costs are translating into cheaper gene screening tests, and that's driving adoption, particularly in cancer, prenatal, and neonatal markets. The ability to identify cancer mutations that can indicate which cancer treatments are likely to be most useful and alert doctors and patients to genetic challenges in children is driving sales significantly higher at genomic services companies, including Invitae.
Invitae is making progress toward its goal of making low-cost genetic screening available to everyone. In the past year, it reduced its cost of goods sold by more than 20%, and it signed agreements that increase access through health insurers. As a result, it performed more than 300,000 tests in 2018, more than double the number in 2017, and its sales skyrocketed 117% year over year to $148 million. In 2019, Invitae is targeting sales of $220 million and test volume of 500,000.
It's not profitable yet, but Invitae's gross margin increased to 46% in 2018 from 27% in 2017, and increasing volume should provide scale that helps margin improve again this year. Operating expenses, such as research and development, will continue to increase as the company invests in new offerings to make its product more valuable. However, operating expenses grew half as fast as sales last year, and the company's rapid growth and the potential size of its addressable market suggest this is a high-risk, high-reward play worth owning in aggressive growth portfolios.