Investing in Genetic Testing Stocks

The completion of the Human Genome Project in 2003 made it possible to find and identify the function of genes, chromosomes, and proteins regulating the development of our bodies. Many companies were formed to explore the human genome and turn their findings into information that's useful for consumers and physicians.

Some genetic testing companies provide direct-to-consumer (DTC) services that help people understand medical risks, identify relatives and regions of origin, and even pinpoint the best diets according to their background. Others dive deeper into the genome to help researchers and physicians identify variants responsible for specific diseases, detect the presence or recurrence of diseases, and determine which treatments would yield the best results.

Genetic testing companies to invest in 2025

Genetic testing companies to invest in 2025

These are some of the genetic testing companies investors may have on their watch list:

1. Exact Sciences

Exact Sciences was founded in 2014 to “relentlessly pursue life-changing answers in cancer that give people the clarity they need to take action, earlier.” Exact developed the Cologuard home test for colon cancer as an alternative to colonoscopies.

Cologuard represents an $18 billion market opportunity. Exact has also developed products for the $25 billion multi-cancer screening market and the $15 billion recurrence monitoring market.

In the third quarter of 2024, Exact reported revenue of $709 million, an increase of 13%, including Screening revenue of $545 million and Precision Oncology revenue of $164 million. It is still operating at a net loss, which totaled $38 million for the quarter, although its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $99 million.

Operating cash flow was $139 million with free cash flow coming to $113 million for the quarter. The company also received approval from the U.S. Food and Drug Administration (FDA) for the Cologuard Plus test, the company's next-generation Cologuard test.

2. Guardant Health

Guardant was founded in 2013 to “ensure patients have access to innovative oncology products.” Guardant provides oncologists with end-to-end testing solutions as part of its Guardant360 testing suite.

Guardant takes a “blood first, tissue second” approach, which can deliver more accurate findings than traditional testing and requires a simple blood draw instead of tissue removal. Management believes the “cancer management products” it is developing could be a $70 billion market opportunity, with offerings including screening, therapy selection, and recurrence monitoring.

When Guardant Health reported its preliminary unaudited financial information for the full-year 2024, it delivered total revenue of approximately $737 million, an increase of 31%. It also reported approximately 206,700 oncology clinical tests (excluding its Shield colorectal test) and approximately 40,500 biopharma tests, an increase of 20% and 35%, respectively.

The company reported negative free cash flow for the full year in its unaudited results, but ended the year with cash and investments of $944 million.

3. Natera

Natera was founded in 2004 to “change the management of disease worldwide by using information gained from a simple blood draw to proactively inform treatment.” The company pioneered noninvasive blood-based prenatal chromosomal defect screening.

Prenatal testing is now recommended for pregnant women of all ages and risk levels, which provides Natera with substantial market opportunity for its Panorama test. Natera is currently expanding its services into oncology and organ transplantation.

In the company's preliminary results for fiscal 2024, Natera reported total revenues of approximately $1.7 billion, an increase of approximately 56%. Natera processed around 3.1 million tests in 2024, up 22.8% year over year.

That figure included approximately 528,200 oncology tests, including 498,300 clinical oncology tests. Natera also reported positive cash inflows of approximately $86.3 million for the 12-month period.

4. 23andMe

23andMe was founded in 2006 with a mission to “help people access, understand, and benefit from the human genome.” 23andMe began as a DTC service providing information on genetic risk factors and ancestry. Another revenue source for 23andMe has been is selling the consumer details it collects to pharma companies, only with explicit customer consent to participate in research and share their data.

23andMe is currently facing significant trouble due to a major data breach that affected almost 7 million user accounts in 2023, exposing sensitive genetic information. This led to class action litigation that the company is working to settle. These issues, plus concerns about the company's future as the demand for at-home genetic testing has fluctuated, has significantly affected share prices and its financials.

In the company's report for the third quarter of its fiscal 2025, 23andMe gave several updates regarding these issues. They recognized $19.3 million of nonrecurring research services revenue pursuant to an agreement they negotiated with GSK (GSK 0.84%) in 2023 to allow GSK to use 23andMe's database for research and drug discovery. That was most of the remaining revenue associated with that agreement.

23andMe's consumer services revenue was down 8% year over year, totaling $39.6 million. The company also announced that a settlement agreement of $30 million to resolve the consolidated class action was not unconditionally approved by a district court, which means that some claimants could still seek to resolve their cases through arbitration.

Finally, management has implemented a 40% reduction in force with anticipated cost savings of more than $35 million annually and has discontinued its therapeutics business to reduce expenses. The company ended with quarter with about $79 million in cash. While 23andMe's products have showed promise, investors will likely want to see whether the company can resolve its mounting legal and financial issues before considering a slice of the action.

5. Fulgent Genetics

Fulgent was founded in 2011 to “develop flexible and affordable genetic testing that improves the everyday lives of those around us.” Fulgent has a growing genetic testing business, offering a variety of genetic tests for oncology, infectious diseases, reproductive health, and more.

In a bid to expand its oncology testing services, Fulgent did a flurry of deals a few years ago. It bought CSI Laboratories for its molecular diagnostics, increased its investment in Chinese joint venture FF Gene Biotech for cancer testing in China, and previously partnered with Helio Health for early cancer detection.

In the third quarter of 2024, Fulgent Genetics reported that its core revenue grew 9% year over year to $71.7 million, although it marked a net loss of $14.6 million. It finished the period with cash and investments of $815.4 million on its balance sheet.

Things to consider

What to consider when investing in genetic testing stocks

The genetic testing market can be broken down into three broad segments: screening, treatment selection, and monitoring. Some companies choose to focus on a single segment such as screening, while others are targeting complete end-to-end testing solutions. With 1 in 6 people having a genetic variant underlying their health condition, the market for genetic testing services is projected to be more than $17 billion by 2026.

• Screening: Testing and diagnostic companies use DNA sequencing to identify specific genetic variations and map them to known conditions. Testing companies often provide services to help physicians and patients understand and act on the results.
• Treatment selection: There are more than 5,000 known genetic diseases, many of which are clinically indistinguishable but have unique effective treatments based on the particular gene mutation that causes them. Often referred to as precision medicine, genetic testing can help select the best treatment for the optimal outcome.
• Monitoring: Genetic testing can be used to monitor how well a particular treatment is working and whether there is a recurrence of the disease. For example, blood biopsy DNA testing can detect cancer recurrence much earlier than other detection methods. Likewise, tissue rejection of transplants can be detected by looking for donor DNA.

Related investing topics

Should you invest?

Should you invest in gene testing stocks?

Many investors find genomics companies complicated. However, genetic testing companies are fundamentally tech businesses, and they can be evaluated in a similar fashion. Unlike early-stage biotech companies, genetic testing companies offer investors ways to directly measure progress against specific levers of growth and performance. For example:

• Number and type of tests being developed
• Accuracy of tests compared to the current standard of care
• Size of the initial patient population and potential for expansion
• Number of markets where the test is available
• Reimbursement levels for the test from regulatory bodies
• Number of partners working to use or sell the tests

If you’re a patient, buy-and-hold investor, genetic testing could be good therapy for your portfolio.