The Scientist came out this month with its annual pick for the top 10 innovations for the year. You won't find new innovative drugs like Eli Lilly's (NYSE:LLY) Effient or Dendreon's Provenge on the list. No, these innovations are mostly devices that help drugmakers discover new drugs.
There's definitely an advantage to investing in technologies used to develop drugs. Just like how purveyors of picks and shovels made money even when all the prospectors found was fool's gold, sellers of laboratory equipment make money even if the drug doesn't get past the Food and Drug Administration.
The list from The Scientist is a good starting point for identifying up-and-coming technologies. Being relatively new technologies, many of the companies on the list are still privately held with venture-backed financing, but technology from a few public companies managed to make the list.
Life without a protein is how some people live
Many diseases are caused by simple genetic mutations that result in the loss of a protein's function. If researchers can develop model animal systems that mimic those traits, it becomes much easier to test potential drugs to see whether they're successful at treating the disease.
Sigma-Aldrich (NASDAQ:SIAL) has developed a system called CompoZr, which uses zinc-finger nucleases (ZFN) to create exact deletions in the DNA of rats. Those rats can then act as model systems to help researchers determine what the affected protein does and how to treat particular diseases.
The ZFN technology comes from a company called Sangamo Biosciences, which has also licensed the technology to Dow Chemical (NYSE:DOW) for use in agricultural research. Sangamo is using the technology to develop therapies to treat diseases directly in humans as well. For instance, it's developing a nuclease that could delete a gene in HIV patients that would make their immune cells resistant to HIV infection.
Making biologics better and cheaper
DNA2.0 is a private company, but its technology is still worth a mention, since it has the potential to help generic- and branded-drug companies in their push to develop follow-on biologics.
Biologic drugs like Amgen's (NASDAQ:AMGN) anemia drugs or Biogen Idec's multiple sclerosis drugs are proteins that are made inside of cells grown in incubators. Companies often use cells derived from insects or hamsters to manufacture the proteins, but the human genes haven't been optimized for making proteins in other organisms.
DNA2.0 has developed algorithms for the optimal DNA sequence for expressing proteins in other organisms. The technology could help generic-drug makers like Teva Pharmaceuticals (NASDAQ:TEVA) and Novartis (NYSE:NVS) produce follow-on biologics cheaper by optimizing the production process.
Pinpointing disease
No. 2 on the list was Abbott Labs' (NYSE:ABT) PLEX-ID. The company bought Ibis, which developed the technology, from Isis Pharmaceuticals about a year ago. It's currently being used to measure mutation rates in viruses and other non-clinical activities, but its more profitable use will be in identifying infectious diseases.
Like laboratory tools, the lure of diagnostic tests is that they get used regardless of the success or failure of drugs. Abbott does have some competition in identifying pathogens including from Cepheid, but with the growing list of bacteria and viruses cropping up -- swine flu, anyone? -- there should be plenty of room to innovate.
Only a starting point
The list from The Scientist and others like it are good idea-generators for potential investments, but keep in mind that these publications don't usually base their lists on the health of the companies that are developing these technologies. An innovative technology is required to make a good company, but it usually takes a little extra to make a company a great investment.
Throw them on your watch list, but do your own due diligence before investing.
