Cathie Wood is a renowned investor who specializes in disruptive technologies and runs the ARK Invest family of exchange-traded funds (ETFs). One of her flagship funds, ARK Genomic Revolution ETF, focuses on companies that are innovating in the fields of biological engineering, synthetic biology, next-generation genomic medicines, and the interplay between artificial intelligence (AI) and drug discovery.
Two of the companies that make up a significant portion of the Genomic Revolution portfolio are Recursion Pharmaceuticals (RXRX 3.57%) and Ginkgo Bioworks Holdings (DNA 10.60%). Both of these companies are platform biotechs, meaning they use advanced technologies to discover and develop novel therapeutics for a wide range of diseases.
Are these two Cathie Wood-owned biotech stocks worth buying at this early stage of their development? Let's take a closer look at what they offer to find out.
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A leading TechBio company
Recursion Pharmaceuticals is a TechBio company that combines biological data and artificial intelligence to discover new drugs. The company has two overarching goals during its initial ramp up: to collect and analyze large amounts of genetic data that can help its AI models find novel targets for diseases and to build one of the world's most powerful supercomputers, BioHive-1, to run these models.
To achieve these goals, Recursion has recently inked a data-sharing agreement with Tempus, a precision oncology company. It has also collaborated with Nvidia, a leader in graphics processing units, to increase the computing power of BioHive-1 by four times. This upgrade is expected to be completed in the first half of 2024.
What does this mean for investors? This requires some vision and imagination from the shareholders.
Recursion's data/supercomputing approach is unconventional and unpredictable. This could lead to breakthroughs in areas that are underexplored or neglected by the industry or result in failures or dead ends.
However, if Recursion's AI models do identify one or more novel therapeutic targets, the company's stock could soar in value. The U.S. healthcare industry is projected to grow to $8 trillion, and a significant portion of this revenue will come from innovative biologics like those being developed at Recursion. In short, early shareholders could be getting in on the ground floor of a game-changing effort in medical science.
The next step in synthetic biology
Ginkgo Bioworks is a pioneer in synthetic biology. The company aims to create customizable cell lines that can serve various industries, such as biosecurity, medical science, and more.
The challenge with the company's investment thesis is that it needs a large enough scale to benefit from the network effects of its platform. Ginkgo has secured some top-notch clients such as Pfizer, Merck, Novo Nordisk, Boehringer Ingelheim, and others. But it still hasn't quite achieved the critical mass necessary to produce unique insights for its customers.
However, it may be close to doing so. By partnering with Google Cloud last year, Ginkgo should be able to leverage the tech giant's AI platform known as Vertex to optimize its operations and deliver a unique value proposition to its growing roster of clients.
That said, Ginkgo stock is a long-term buy and hold. The true potential of its synthetic biology platform is not likely to be realized anytime soon. However, those willing to hold for 10 years or more could reap huge rewards.
There's no doubt that synthetic biology will eventually become a major force in the field, and big pharma has already invested billions in this groundbreaking area in different ways. Ginkgo, as a leader in synthetic biology, stands to benefit from this powerful trend in the coming decades.
This tiny biotech has often been compared to some of the world's most dominant tech giants in their early formative days. This underscores Ginkgo's enormous potential as a long-term investment.
