Cathie Wood and her firm ARK Investment Management focus on areas of disruptive innovation. Few sectors have the potential to be more disruptive than genomics, where recent advancements are set to transform the healthcare industry. Technology improvements and cost reductions in genetic testing and therapies are making it possible to diagnose, treat, and even cure devastating diseases.
ARK management believes these advancements are ushering in a "Genomic Age" that could create trillions of dollars in equity market capitalization by 2024.
To take advantage of these trends, the ARK Genomic Revolution ETF (ARKG -0.93%) invests in companies proving to be "leaders, enablers, and beneficiaries" of CRISPR (a gene-editing technique), targeted therapeutics, bioinformatics, molecular diagnostics, stem cells, agricultural biology, and healthcare innovation.
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ARK is not the first to make big predictions about genomics. Ever since the human genome was sequenced almost 20 years ago, the promise of genomics has always seemed right around the corner. You'd be right to ask, "Why is this time different?"
History doesn't repeat, but it often rhymes
Perhaps the best way to answer the question is to compare genomics companies to the FAANG stocks: Facebook, Apple, Amazon, Netflix, and "Google" (Alphabet). These companies now represent some of the largest and most successful businesses in the world -- and none could have existed without a 20-plus year foundation of technology development in chips, PCs, networks, operating systems, browsers, and more.
In much the same way, over the last two decades the genomics industry has been creating a foundation in several key areas that should drive explosive growth and market opportunity over the next five years:
- Sequencing companies are the "engines" of genetic research. Companies like Pacific Biosciences of California (PACB -3.63%) seek to increase sequencing accuracy and the ability to spot more variants using long-read sequencing. Driven by cost and accuracy improvements, sequencing volumes are expected to increase by more than 10 times over the next three years.
- Diagnostic companies use sequencing data and artificial intelligence (AI) to identify specific genetic conditions. Companies such as Invitae (NVTA) have built testing platforms to identify several thousand genetic variants at a cost of less than $250 for an entire test panel. Exact Sciences (EXAS 0.12%) is building products that can screen for multiple cancers, giving them the potential to transform early cancer detection. The cost and convenience of these new tests could increase the genetic cancer testing market to more than $150 billion in the U.S.
- Therapeutic companies use diagnostic data to develop clinical therapies. Companies such as Intellia Therapeutics (NTLA -1.24%) have made headlines recently using in vivo (in the body) CRISPR gene editing to treat devastating chronic conditions. The addressable market for single-gene diseases could reach $75 billion annually.
All of these advancements have enabled hundreds of potential clinical treatments. By the end of 2020, the U.S. Food and Drug Administration (FDA) had only approved 10 gene therapies. However, in that same year 238 new gene-therapy trials were initiated, for a total of 712 now underway. Clearly the floodgates have opened, with hundreds of new gene therapies likely reaching the approval stage in the coming decade.
Double your money
The ARK Genomic Revolution ETF aims to invest in companies ARK management believes can grow by 15% per year or more annually -- effectively doubling investors' money every five years. That would be a great investing result, and seems to be quite achievable given the maturity and prospects of the genomic industry.
The markets will be huge; there will be many winners. And it's possible we could see a company with a trillion-dollar market cap emerge from this sector.
The ARK Genomic Revolution ETF has been beaten up a bit in the post-pandemic sector rotation, and is still 23% off its 52-week high. Given its high potential, long-term buy-and-hold investors should consider the current share price as a gift, providing them with front-row seats to the genomic revolution.
