Writing The Hitchhiker's Guide to Your Genome

A few years ago, I was approached on a regular basis by people who wanted me to add companies to my Breakthrough Technology Alert portfolio that perform personalized genome sequencing. Obviously, I didn’t, which has led some people to ask if I thought that genome sequencing was an overblown fad.

In fact, I think that genome sequencing is an enormously important part of the larger genomic breakthrough. There are several big problems with sequencing as a standalone product, however.

First, the process of commoditizing gene sequencing was immediate. From the beginning, there have been regular announcements of this or that company offering a new method along with dramatically lower prices for analyzing a person’s genome. No single company had sufficient IP to dominate the market and pull in really big profits, so prices continue to fall. This is due not only to cheaper computational power, but to competition. Genome sequencing companies are, therefore, in the same category of companies as those that do blood and other diagnostic tests.

Though there will probably be lots of profitable sequencing companies, that’s not what your breakthrough technologies portion of your portfolio should be about. Remember, with Fed monetary policy in mind: this is a spectator’s market, not an investor’s market. We are assembling a group of transformational companies with blockbuster potential. “Profitable” is not close to good enough for our purposes. The concept is very simple: our extreme-potential companies will fail, but en masse, the group will far outperform the rest of the market in the long run.

Keep in mind that genome sequencing can be done anywhere in the world. The cost of shipping a tiny sample of one’s DNA to be sequenced is relatively trivial. Already, in fact, we are seeing companies in India, Israel and China gear up to offer genome sequencing services internationally. They’ll get the price down to less than the cost of an iPhone and still make money. Their delivery costs for the final product, a huge digital file describing an individual’s DNA, will show up in your email or on your phone.

Still, however, that product — the sequenced genome — is essentially worthless even to most doctors. We have over 50,000 genes and our understanding of their individual functions is evolving at a breathtaking pace. As Moore’s law continues to drive down the cost of sequencing and analyzing sequencing results, more and more genomes will be available and the pace of discovery will accelerate even further. The killer app in genome sequencing, therefore, is bioinformatics — the computer processing and analysis of genomes in a manner that is useful to the customer and health care provider.

This is one of the reasons, by the way, that I have so many times encouraged my son to take the bioinformatic career path. This may be the most important new area of science, and demand for bioinformaticians is high. Bioinformatics is, in fact, where computer technologies and molecular biology meet, and this meeting is going to change everything.

So who is going to provide this blockbuster product, the useful interpretation of a person’s genome? A related question for investors is who, if anyone, has enough competitive advantage to dominate the market.

For the last year or so, I’ve been talking about BioTime’s LifeMap Sciences. Originally, BioTime set out to create the ultimate database of cell development — from embryonic or induced pluripotent stem cells through the many thousands of paths they take to become all of the different cells in the human body. This database includes all the molecular genetic engineering knowledge about these different paths and how to influence them.

This database, which is online now, has allowed BioTime to partner with major suppliers of research products. Those products are linked in proximity to the cells that researchers are interested in.

Then, BioTime acquired exclusive rights to GeneCards and MalaCards, developed and maintained by Israel’s prestigious Weizmann Institute of Science. Israel, incidentally, is the world center of bioinformatic research and progress. Together, these three projects compose the only integrated database of constantly updated information on the specific cell types, the genes functioning within those cells and genetic information about the diseases that afflict them.

This is the most important biological database in history, and one press release from BioTime provides some of the evidence that this is so. Essentially, they have disclosed that this combined database, with deep-linked products for sale, has about 2 million regular unique visitors per month. These users are, for the most part, scientists, with a few exceptions like me. Many of these users, therefore, control significant research budgets.

For purposes of valuation, companies like LinkedIn and Facebook previously estimated that each unique regular visitor is worth about $65. LifeMap’s users are, obviously, more valuable. Moreover, research suppliers and pharmaceutical companies actually pay for access to the database. But let’s assume that these highly educated and connected users are worth only $100 per unique set of eyeballs. That’s $200 million — so far.

There are many ways for BioTime to monetize these users, unlike Facebook and other social networking sites. Today, however, let’s talk only about the killer app of genomic sequencing. Specifically, the real money in sequencing is to be generated via practical analysis and interpretation of sequenced genomes. This product would not only describe potential problems, but could provide information on diagnostic, nutritional and behavioral approaches to countering potential genetic problems.

BioTime and LifeMap executives, have the only integrated database with constantly updated data on genes and their impacts on health. At this point, I find it unlikely that anyone would be willing to replicate an already existing resource that is provided free of charge to most users.

I am convinced that they are in a unique position to provide individual genome sequencing interpretation. The company also has access to inexpensive genome sequencing facilities offshore due the location of various international subsidiaries.

I’m going to leave it at that for now, but this really is remarkable progress, both scientifically and financially. I’ll excerpt a quote from Dr. West, CEO of Biotime, below:

“We are witnessing the unification of the fields of genomics, cell biology and medicine,” said Michael West, Ph.D., CEO of BioTime and chief scientific officer of LifeMap. “As a result, professionals in one field increasingly require instant access to large amounts of data from the other fields. LifeMap is fulfilling BioTime’s strategic goals, on the one hand by generating near-term revenue to balance the longer-term nature of our cell-based therapies and on the other by building foundational tools integral to the future of medicine.”

To be continued…

Yours for transformational profits,

Patrick Cox
for Tomorrow in Review 

The Daily Reckoning