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The genomics space isn't new nor is its underlying investment thesis. In fact, genomics is becoming more investable with each passing year as advisors have an increasing array of ideas to discuss with clients, including individual equities and funds.
While genomics isn't a young concept, it remains disruptive – arguably one of the most disruptive corners of the broader healthcare sector. One of the primary reasons genomics is a compelling idea for clients, particularly those that can handle some elevated risk because genomics companies aren't your grandfather's blue-chip pharmaceuticals stocks, is that the industry's disruptive capabilities have myriad applications.
Along those lines, it might be practical to consider offerings from experts in disruptive investing. Enter the ARK Genomic Revolution ETF (CBOE:ARKG).
In the essence of not sugar-coating things, ARKG is in the red on a year-to-date basis, as is the case with many funds with exposure to small- and mid-cap biotech stocks, and the ARK fund resides 24% below its 52-week high. Obviously, advisors cannot ignore those statistics, but those numbers shouldn't be deterrents to what's undoubtedly an attractive long-term opportunity.
Cancer Detection: An Epicenter for Genomics Disruption
More than a year and a half into the coronavirus pandemic, it's not a stretch to say that, from an investment perspective, the healthcare thesis is revolving around vaccine makers. From a treatment perspective, it sure feels like other COVID-19 is commanding all the headlines and other ailments and diseases are being pushed to the back burner.
Unfortunately, cancer, as just one example, is still around and better detection of cancer is a prime opportunity for genomics to shine. Next-generation DNA sequencing (NGS), an emerging genomics concept that ARKG is better levered to than many competing strategies, is helping clinicians' better understand and identify tumors.
“Solid tumors progress arbitrarily quickly through a process known as somatic evolution. This process describes how tumors evolve from genetic mutations that accumulate in cells over time,” says ARK Invest analyst Simon Barnett. “Unlike hereditary mutations that reside in virtually every cell of the body, somatic mutations occur spontaneously and can give rise to tumors.”
Looked at in simpler terms, cancer is very much a genomics disease and with better leveraging of genomics applications, healthcare professionals can potentially identify cancer in patients earlier. Earlier detection leads to better patient incomes, including higher survivorability rates, underscoring ARKG's relevance as a sustainable investment idea. Consider the following from ARK's Barnett.
“Fortunately, innovations involving NGS, bioinformatics, synthetic biology, and data processing have broadened our collective understanding of cancer,” he notes. “Newer genomic domains like single-cell sequencing, long-read sequencing, optical mapping, and digital spatial profiling also are enhancing our understanding of tumor biology. ARK believes that the foundation of knowledge built during the past two decades will enable clinicians to detect cancer earlier and treat it more successfully.”
On the Cusp of Healthcare Revolution
Unbeknownst to many clients (translation: opportunity for advisors) is that genomics shares some favorable traits in common with other, familiar disruptive growth concepts. For example, as is the case with renewable energy, genomics costs are falling, making adoption more attractive.
Additionally, genomics intersects with other innovative segments, such as artificial intelligence and technology. In fact, evolving technology is one of the backbones of genomics advancements.
“Our research suggests that machine learning has lowered the cost of methylation-based liquid biopsies dramatically, pushing them that much closer to commercialization,” according to Barnett.
That's relevant to clients because DNA methylation is essential in earlier cancer detection and the efficacy of liquid biopsies is likely to increase as cost efficiencies and larger scale are achieved. In other words, the ARKG runway of opportunity is lengthy and applicable for risk-tolerant clients.
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