With so much hype around coronavirus vaccine stocks, it was easy to miss Personalis (NASDAQ:PSNL), which became a 10-bagger after the market crash last year. Personalis is a biotech that competes with Guardant Health (NASDAQ:GH) and Adaptive Biotechnologies (NASDAQ:ADPT) in the cancer genomics space. The company provides DNA sequencing to drug companies researching pharmaceuticals. Other major competitors include NanoString Technologies (NASDAQ:NSTG) and Foundation Medicine, a subsidiary of Roche Holdings (OTC:RHHBY).
Personalis is an underdog in cancer genomics, according to Mr. Market, who has assigned the stock the smallest market cap out of this group. And when the stock market crashed last March, Personalis was hit hardest. The stock cratered all the way to $4.27 a share.
You probably wouldn't have bought at the exact bottom, but let's suppose you did. With $10,000, you could have bought 2,341 shares on March 17. At a recent price of $43, your $10,000 Personalis investment would now be worth around a cool $100,700. Not a bad gain in 10 months!
A less-risky option is the basket approach. It's a pretty safe bet that the cancer genomics business is going to be huge. What if we're not ready to pick a winner? Then it's not a bad idea to divvy up your $10,000 and buy five different stocks in this sector, instead of just one. If you had done that on March 17, here's what would have happened.
|Stock||Price on March 17, 2020||Investment||Shares||Value on Jan. 1, 2021|
In this case, your $10,000 cancer genomics basket would now be worth over $38,000. You've quadrupled your money in less than a year.
A lot of investors following a basket approach eventually filter out the weaker stocks, and add to the winners. Should we do that now? Is Personalis a buy after this incredible market performance? Let's take a look.
Why did Personalis shoot up so much last year?
One of the reasons for the incredible run-up is that Cathie Wood's ARK Investments has been a major proponent of the stock, and the cancer genomics space in general. Her Genomic Revolution ETF (NYSEMKT:ARKG) owns about 17% of the company. And she's been an active buyer as well: the fund's Personalis share count has doubled since September to over 6 million shares.
While the stock has been on fire -- quadrupling in 2020 -- Personalis is actually a sluggish company right now, with only 15% sales growth in its most recent quarter. But Wood is drumming up excitement in genomics stocks because of what sort of growth we might expect to see in the not-too-distant future. In an interview with Livewire Markets, she said, "Our geneticists -- and you're going to have one, and so am I -- our geneticists are going to be able to identify for the first time the needle in the haystack. They're going to be able to identify which genes in our genomes have mutated...it's going to be incredible, to catch cancer in stage one..."
Personalis is a good bet to win this race as the company has one of the most extensive genomic libraries in the world. So far, Personalis has sequenced the genomes of over 100,000 people. Its NeXT platform monitors 20,000 genes, which is 40 times more comprehensive than the liquid biopsies currently on the market. The company estimates its market opportunity for cancer genomics at $40 billion.
The major market for Personalis is the 2 million cancer patients who are being actively treated. Using the NeXT platform, doctors can identify the pharmaceuticals that will best help these patients, based on the map Personalis provides of an individual's genome. That's a $6 billion market for therapy selection and a $23 billion market for in-depth monitoring as the treatment progresses. And there's an additional $7 billion market for the 200,000 patients who participate in clinical trials every year.
The holy grail in genomics research is finding cancer in seemingly healthy people. A blood test that could identify cancer early would be invaluable to humanity. As ARK puts it in its white paper, "an early stage pan-cancer detection test could become commercially viable within the next few years, with profound impacts on human health: If every Stage 4 cancer were detected instead in Stages 1, 2, or 3, the U.S. cancer mortality rates could decline by as much as 25%."
What's exciting for investors is how big this market opportunity can become. In the future, perhaps everyone will have their genome sequenced. That's likely to happen because the cost of sequencing is dramatically falling. The Human Genome Project spent $2.7 billion to decode one human genome at the beginning of the 21st century. That price tag has now dropped to $600, and should continue to fall to about $100 in the next five years, according to ARK.
Over the next decade, this market will expand dramatically, from already-diagnosed cancer patients to all of humanity. As sequencing gets cheaper and cheaper, more and more of us will have our genes mapped. Doctors will be able to see cancer mutations before any symptoms appear. With this knowledge, we can diagnose and treat cancer early, when it's much easier to defeat.
To buy or not to buy
While a $40 billion market opportunity is already sizable, the market for genomics will get a lot bigger. This sector will truly revolutionize healthcare. It's not a bad idea to invest in Personalis, or a genomics basket, to ride this wave.