Almost every day, Ark Invest buys at least a handful of innovation-heavy stocks for its collection of exchange-traded funds. Ark Invest founder and CEO Cathie Wood has a lot of confidence in the genomic revolution, and in two companies in particular.
Hardly a day in March has gone by without Wood making purchases of Adaptive Biotechnologies (ADPT 0.39%), Burning Rock Biotech (BNR 3.56%), or both. Here's why she thinks they can generate big gains for the Ark Genomic Revolution ETF (ARKG -2.79%) and individual investors.
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Adaptive Biotechnologies
Ark Invest has been buying up shares of this next-generation diagnostics company for over a year and isn't slowing down. Wood bought more shares of Adaptive Biotechnologies on most of the available trading days in March.
Shares of Adaptive Biotechnologies have fallen by more than half since the beginning of 2022, along with a lot of other diagnostics stocks. Wood's confidently buying this one on the dips because its unique approach to monitoring blood samples for signs of disease could help it stay several steps ahead of the competition.
As its name implies, Adaptive Biotechnologies applies proprietary technology to read the genetic code of a patient's adaptive immune system. This is the part responsible for attacking and removing pathogens, like tumors or the virus responsible for COVID-19.
Looking for adaptive immune responses is particularly useful when it comes to monitoring cancer patients in remission for signs of recurrence. The company's clinical diagnostic product, clonoSEQ, is the first test authorized by the U.S. Food and Drug Administration (FDA) to detect minimal residual disease in patients with two relatively common forms of leukemia and multiple myeloma.
The company also markets a test called immunoSEQ which assists drug developers and academic researchers. In addition to being an important source of revenue, immunoSEQ has the world's drugmakers paying Adaptive Biotechnologies to expand and improve its proprietary map of the innate immune system.
Adaptive Biotechnologies thinks the addressable market for clonoSEQ and immunoSEQ could grow to more than $54 billion annually. With the best genomic map of the adaptive immune system available, the company's position at the top of this growing niche seems very secure.
Burning Rock Biotech
Wood started buying up shares of Burning Rock Biotech last November, and it's been one of the most consistent additions to the Ark Genomic Revolution fund ever since. This Guangzhou-headquartered company is leveraging low-cost genome sequencing to help Chinese cancer patients in more ways than one.
Burning Rock Biotech has a cancer therapy selection business that increased sales by 38% during 2021, and recent approval for a second companion diagnostic kit could accelerate this trend in 2022. This March, the company also launched a minimal residual disease monitoring service aimed at cancer patients in remission.
Burning Rock is an important partner for China's growing pharmaceutical industry, as well as some big international players. The company recently entered a collaboration with Merck KGaA to create a companion diagnostic for Tepmetko, the German pharma giant's new lung cancer treatment.
The market opportunity for companion diagnostics and minimal residual disease monitoring is large, but still tiny compared to the opportunity for early disease detection. Burning Rock could begin realizing this opportunity soon. The company has a test in development that screens for nine different cancers. A 2,000-patient clinical trial is fully enrolled and the company will read out the results this year.
Know the risks
The opportunities in front of Adaptive Biotechnologies and Burning Rock Biotech are enormous, but it's important to realize these are hyper-risky stocks that should only be added to well-diversified portfolios. Revenues are way up at both companies, but not enough to avoid heavy losses on the bottom line in 2021. The years ahead could be a lot better, but there aren't any guarantees.
