A stock to ride the DNA boom

It was the most spectacular fireworks display I have ever attended. Every time I thought it was reaching its climax, another awesome sequence of pyrotechnics was unleashed. This memorable display was the centrepiece of a party held at the Sanger Centre outside Cambridge to celebrate the completion of the Human Genome Project ten years ago. My wife was working there, hence my invitation into their world.

It had been a long journey for my wife and her colleagues. Initially researchers focused on decoding the genetic makeup of viruses. Even such simple entities can have over 100,000 base pairs. A human being has rather more – about three billion. To unravel a sequence on this scale within an acceptable margin of error required huge data processing power and a lot of time and money.

But it’s only now that this story is really baring fruit for investors. The sequencing of the genome has opened up several fields of research that are producing life-changing treatments – and making very good money for investors in the process. I’ll tell you about one such stock today. It’s a stock that I own and it’s one I’m personally happy to hold for many more years to come. And there are many more like it in this sector…

Angelina Jolie and the sampling explosion

The $3bn Genome Project began in 1990, the first draft of the human genome was published in 2000 and the Project was declared complete in 2003. It represented a major international collaboration, spurred on by competition from the commercial sector. But the payoff for the investor has been some time in coming.

That commercial element has created several controversies. For example, is it permissible, let alone ethical, to patent a gene sequence? Companies have tried to do this, but the law has tended to side against patenting naturally occurring genetic data.

The commercial opportunities lie in the new treatments that are becoming possible and in the diagnostic tests that use gene sequencing. Genomics opens up the field of preventive medicine – if we can identify a genetic mutation in a specific person that is associated with developing a particular cancer, then we can take pre-emptive action.

Angelina Jolie gave a lot of publicity to this preventive approach by revealing she underwent a double mastectomy earlier this year. She had a tragic family history of cancer and tests showed she carried a defective gene that gave her an 87% chance of contracting breast cancer. Ms Jolie was well informed and could afford the tests and subsequent treatment. Her decision to go public on such a private matter has been widely applauded in terms of raising awareness of genetic testing.

If such tests and benefits are to be applied in the wider population, they have to be simple and affordable. Remember that it took 13 years and $3bn to complete the Human Genome Project. In the following ten years, the focus has been on bringing down the cost and the time taken to sequence a human’s genome. Earlier approaches to accessing genetic information have focused on sampling. The DNA array technique tests up to one million genetic variants. The goal is to make whole genome sequencing (six billion data points) as quick and affordable as sampling. There are many, many billions at stake here. And great returns to be made. Take this example…

A USB stick that reads your DNA

Oxford Nanopore is one UK company playing a part in opening up genome sequencing to the mass market. Its devices aim to be low cost, to work in real time and be portable. The company was founded in 2005 to commercialise nanopore technology developed in Oxford, Harvard and the University of California.

A nanopore is a very small hole. Very small in this context is a billionth of a metre in diameter, the size that allows single molecules to pass. If you can ratchet a strand of DNA through an electrically charged nanopore, the current will be disrupted in a way which allows the identification of the nucleotide bases in sequence as they pass. The data can be read in real time, which allows analyses to be made immediately and the process to be stopped once the targeted information has been obtained.

Oxford Nano’s original design is the GridION. The DNA sample is introduced into a single-use cartridge containing the chemical reagents needed for the experiment which is then plugged into a node. This is the electronic platform that reads the data and can be fed into the lab’s IT system along with other nodes, making it possible to test samples very quickly.

Their newer product is the MinION, introduced as a prototype last year. It is a single-use miniaturised device which will ultimately be not much bigger than a memory stick, and likewise, will work by being plugged into a USB port in a laptop or PC. The target cost? Less than $1,000.

The company now has a portfolio of over 300 patents and an exciting technology. It is at that critical point where it has to make the transition from the research and development phase to the commercial world.

The MinION was unveiled last year and was expected to be in the market by now, but the launch appears to have been delayed. Having raised £31m last year, the company as a whole is valued at a significant £327m. Oxford Nanopore isn’t quoted; but it is possible to get indirect exposure through main-market-listed investment company IP Group (IPO), which owns a 20.3% stake, making it IPO’s biggest holding.

IP Group uses its relationships with UK universities to invest in intellectual property-based businesses that are spun out of academic research departments. It has formal agreements with 12 of our leading universities. In the Times Higher Education World University Rankings, four of the top six institutions in clinical, pre-clinical and health are British (Oxford – the world number one, Cambridge, UCL and Imperial). IPO has an extensive portfolio with holdings in 70 companies, and so far, 15 of the businesses it has supported have listed on the alternative investment market (Aim).

In its most recent results, announced last week, IP Group declared itself to be “confident in the manner in which Oxford Nanopore is preparing and approaching the market and looks forward to future developments”. Having whetted our appetites, it would be wonderful to see Oxford Nano’s MinION USB device in the marketplace. It certainly has me excited. The stock has more than doubled in the last two years. And there is more to come in my view. I’ll keep up to date on this and other genomic opportunities in the coming weeks.