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Of all the growth themes followed by Lord Abbett equities portfolio managers, nothing illustrates the allure of transformative innovation like genomics—the study of genes and their function.
It took more than 10 years and billions of dollars to map the human genome.1 Now, thanks to unprecedented technological advances, industry and academic researchers around the world can access astronomical amounts of data via the Internet in the hopes of understanding genetic mutations that may factor in a wide range of maladies, including the leading causes of death. Major pharmaceutical companies in search of new drugs to replace the ones going off patent (that is, becoming generic) are actively looking to expand their genetic expertise by acquiring or forming joint ventures with leaders in applied genomics. And some technology investors are even wondering about the genes that influence the brain circuits that generate decisions about risk and reward over time.2
"We are on the leading edge of a true revolution in medicine," said Francis Collins, director of the National Institutes of Health (NIH)3 and one of the leaders of the international consortium that helped determine the sequences of the three billion chemical base pairs that make up human DNA4 in 2003. "[That revolution] promises to transform the traditional 'one size fits all' approach into a much more powerful strategy that considers each individual as unique and as having special characteristics that should guide an approach to staying healthy."5
"Today, high-speed sequencing and advancements in genomic data analysis are empowering unprecedented advancements in biological sciences and being applied to the most pressing issues facing human health [see Figure 1] and medicine," added Simon Tripp, senior director of the Battelle Institute's technology partnership practice."6
The most visible aspect of the genomics revolution is diagnostics, particularly tests that can identify a patient's genetic predisposition to certain diseases, or molecular mutations that contribute to certain maladies. A genomic-sequencing test that cost Apple co-founder Steve Jobs $100,0007 some years ago now costs a few thousand dollars (see Chart 1), and could drop even further in the next several years. "Genetic testing is rapidly spreading," said Dr. Robert L. Klitzman of the Columbia University Medical Center. "Every year, dozens of new genetic tests are developed and offered. Over time, the amount of testing will soar."8
Source: National Human Genome Research Institute (NHGRI).
Note: To illustrate the significant decline in DNA sequencing costs, this graph shows hypothetical data reflecting Moore's Law, which in its simplest form states that processor speeds, or overall processing power for computers, will double every two years. It is widely believed that technology improvements that keep pace with Moore's Law are doing exceedingly well, making it useful for comparison, according to the National Human Genome Research Institute (NHGRI).
Tom O'Halloran, Lord Abbett Partner & Director of Multi, Large, and Small Cap Growth, bought into that subsector relatively early in the innovation cycle and well before sequencing costs started to plummet. One of the leading companies in this space was a testing equipment manufacturer that became so popular with hospitals and research institutions around the world that a global pharmaceutical giant tried in vain to take it over this year.
"In rejecting the takeover bid, management demonstrated conviction in the potential of its technology to generate greater market value in a future secular growth cycle" said O'Halloran.
"Why would a pioneer in that technology want to be stuck inside a huge pharmaceutical company, where its R&D [research and development] is probably going to be reduced?" added Lord Abbett Research Analyst Dawn Brock.
As that company's market cap ramped up from about $1 billion to more than $5 billion, some investors sold their stakes because growth decelerated in between new product cycles; but because it is a pure play in the genomic testing space, they would consider buying it again if growth resumes in another new product cycle. Meanwhile, analysts are keeping their eyes on a company that makes advanced test equipment designed to sequence an entire human genome in a few hours for less than $1,000. The New York Genome Center, a major nonprofit consortium,9 recently announced that it had purchased four such machines, which will be housed at the Memorial Sloan Kettering Cancer Center and used to accelerate its research on the genetic mechanisms of cancer.
Barking up the tree of life
If the cost of mapping genes and sequencing one's DNA drops low enough and testing devices become as ubiquitous as the hand-held device one company is developing, will the masses demand tests that tell them which health problems they might inherit? Will parents some day be able to gauge their newborn children's susceptibility to certain maladies as they age? Will insurers pay for such tests?
While the answers to these and many other questions may take years to materialize, some patients have already chosen to have their stomachs removed based on tests showing their family carries a mutation of the gene that can cause hereditary gastric cancer. In the meantime, the rapid pace of genomics innovation (see sidebar on pages 5–6) continues to reshape the pharmaceutical industry.10
"Even though they don't talk about it very much, every single pharmaceutical company has some aspect of genomics-based drug discovery going on," said Talukdar. "And this is likely to result in a new wave of drugs in the next two to five years [given how long it takes to go from research to regulatory approval]."
At any rate, the amount of information that genomics research and drug discovery generates is growing exponentially. Imagine that the sequencing alone of just one human genome can fill 200 100-page phone books.11 Multiply that by thousands, if not millions some day, and bioinformatics, the burgeoning science of managing and analyzing biological data using advanced computing techniques, takes on greater urgency. (See, for example, ".")
As Lord Abbett Research Analyst Matt De Cicco put it, "Today, you can get a test that looks at dozens of genes that are known to have drug targets for which cancer can be treated for less than $5,000. The lower that price goes, the more the market should open up; but the challenge for such technology is also delivering a result that is easily interpretable by a very busy oncologist who then has to explain to a patient what it all means in a way that's actionable. That will take considerably more work."
"It's a doctor's worst nightmare," added Brock, alluding to the difficulty many doctors have experienced just converting to electronic records. While leading hospitals and research institutions have plenty of experience with the latest generation of genetic-sequencing equipment, the learning curve may be much steeper for the average general practitioner or specialist.
"One challenge will be plowing through the trove of genomic data to find the defective genes that control certain pathways that lead to a certain disease state," said Deepak Khanna, Lord Abbett Partner and Portfolio Manager for Large Cap Value and Multi Cap Value. "Once you find the right targets, the challenge becomes finding the right drugs that will be safe and efficacious enough for patients."
"Gone are the days of serendipity in drug discovery, where in the absence of detailed knowledge about a process in the body, we just threw as many chemicals at a disease to see what would stick, with sometimes harmful side effects," said Lord Abbett Research Analyst Lavina Talukdar. "Now, more than ever, regulators are likely to ask for the results of genomic testing (also known as companion diagnostics) before they will consider approving a drug."
Advancing genomic research in "the cloud"
Of the many initiatives designed to drive genomics-based innovation, the 1,000 Genomes Project makes a fascinating study. Initiated in 2008, the international public-private consortium aims to build the most detailed map of human genetic variation available, ultimately with data from the genomes of more than 2,600 people from 26 populations around the world.
Since the project's launch, the data set has grown enormously: At 200 terabytes, it is the equivalent of 16 million file cabinets filled with text, or more than 30,000 standard DVDs—a prime example of data that has become so massive that few researchers have the computing power to use them.
To help solve that problem, the NIH and Amazon Web Services (AWS) announced last March that they were posting the 1,000 Genomes Project data for free as a public data set, providing a centralized repository on the Amazon Simple Storage Service.
Storing all this data in the cloud (an Internet storage utility) allows any researcher to access and analyze the data at a fraction of the cost it would take for an institution to acquire the needed Internet bandwidth, data storage, and analytical computing capacity. Cloud access also enables users to analyze the data much more quickly because it eliminates the time-consuming download of data and because users can run their analyses over many servers at once, the NIH said.12
"The explosion of biomedical data has already significantly advanced our understanding of health and disease. Now, we want to find new and better ways to make the most of these data to speed discovery, innovation, and improvements in the nation’s health and economy," said NIH director Francis Collins.13
"Improving access to data from this important project will accelerate the ability of researchers to understand human genetic variation and its contribution to health and disease," added Dr. Eric D. Green, director of the National Human Genome Research Institute, a major funder of the 1,000 Genomes Project, along with the Wellcome Trust of London and BGI-Shenzhen of China.14
"Companies want to know which subset of patients is going to benefit the most from their target therapy," said William Pao, director of personalized cancer medicine at Vanderbilt University Medical Center in Nashville, Tennessee. "You want to get the most comprehensive information to help make a decision to move a drug forward."15
According to Lord Abbett Research Analyst Matt DeCicco, regulators have approved 50 drugs for 10 targets, and there are about 500 drugs in clinical trials aimed at another 150 targets, a number of which can be directly attributed to genomics research. "Companies that really understand the molecular biology behind the genomically developed drugs that will be approved in the next five to 10 years represent a potentially substantial investment opportunity," he said.
Encouraging as that may sound, the chances of any of those drugs generating revenues akin to such mass-market successes as Lipitor (anti-cholesterol) or Plavix (anti-clotting) appear to be fairly remote because they are targeted to smaller patient populations, added Talukdar. As a result, the prices, at least for the foreseeable future, are likely to be exorbitant, as women with advanced breast cancer, for example, discovered after the Food and Drug Administration (FDA) approved Herceptin in 1998. Originally priced at $20,000 a year, that drug now costs as much as $100,000 a year.
Given such exorbitant pricing, expectations of truly personalized medicine may have gotten ahead of themselves, but Talukdar believes affordability will improve.
"Genomics has come a long way, but the notion that it will lead to a magic bullet, or one-size-fits-all drug, is overly optimistic," Talukdar cautioned. "Instead, there has been remarkable progress in identifying the genetic fingerprints of certain diseases and targeting specific treatments to populations with those common genetic characteristics. The more the pharmaceutical industry moves toward safer and more effective targeted therapies that benefit subsets of patients and reduce adverse drug responses, the less it should cost society over time through reduced adverse events and side effects that require doctor visits and hospitalizations. The key here is over time. Initially, these drugs will cost much more than their conventional counterparts."
The biggest obstacle, however, may be reimbursement by private insurers, Medicare, and Medicaid, particularly when it comes to cancer. While 1.5 million people a year are diagnosed with that disease, only a small fraction of them are asking their doctors whether their tumors should be genetically profiled, despite the clinical community's faith in the availability of reliable, interpretable, and actionable tests, said DeCicco.
"This field is moving too fast for the insurers to keep up," he added. "The scientists at the Mayo Clinic, Sloan-Kettering, and other centers of excellence will keep up because they get all the medical news, see all the research, and know what works; but insurers can't move that fast. And that could cause a bottleneck."
— Reported by Steve Govoni
Source: National Human Genome Research Institute; the St. Jude Children's Research Hospital—Washington University Pediatric Cancer Genome Project; American Society of Clinical Oncologists; and the University of Texas MD Anderson Cancer Center.
The opinions in the preceding commentary are as of the date of publication and subject to change based on subsequent developments and may not reflect the views of the firm as a whole. This material is not intended to be legal or tax advice and is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy or completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Lord Abbett funds. This and other important information is contained in each fund’s summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, contact your investment professional or Lord Abbett Distributor LLC at 888-522-2388 or visit us at www.lordabbett.com. Read the prospectus carefully before you invest.