The Best Stocks to Play the Protein Trend

DNA Double Helix(es)

There has been an explosion of DNA analysis services over the last decade.

Right now, you can call up 23andMe and order a DNA kit to give a basic health and ancestry report, simply by submitting a saliva sample.

Ancestry.com offers a similar test that will give you an idea of your extended family tree. You need only purchase the AncestryDNA kit for $100.

Or you can step it up a notch and order one of a variety of health tests from Helix, which also sells wellness and ancestry kits. They’ll analyze your DNA and give you an idea of diseases you may be at risk for.

Beyond these consumer-oriented DNA sequencing services there is a long list of more sophisticated companies. They’ll perform DNA analysis and related services, all of which are intended to help people learn more about their past, live better, live longer, and better treat (and ideally beat) diseases they either have or are at risk of developing.

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The best stocks in this category are, in no particular order, Illumina (ILMN), Thermo Fisher Scientific (TMO), Invitae (NVTA), Laboratory Corporation of America (LH) and NanoString (NSTG).

Most of these stocks are doing well because of the explosion in demand for DNA sequencing, which has quickly become the backbone of the personalized medicine trend. At a high level, personalized medicine tailors treatments and suggested behaviors to individuals based on their genetic makeup, predicted response to treatments and lifestyle choices, and risk of disease.

But there’s more to the future of personalized medicine than DNA analysis alone.

One particularly exciting, and earlier-stage, area of research is focused on proteins, those complex molecules that carry out all the necessary chores in your cells so you can go on living.

Cutting-edge work is being done in protein engineering, protein sequencing and protein-analysis. And it’s leading to better drugs, more efficient drug manufacturing methods and even superior DNA analysis.

The Lowdown on Proteins

Proteins are large, complex molecules that organisms need for the structure, function and regulation of tissues and organs. They serve a critical function in just about every biological process.

They help us move, transmit nerve impulses, control cell growth and differentiation and provide immune protection. There are several varieties, from antibodies and enzymes to structural proteins, storage proteins, transport proteins and more.

Enzymes are the proteins that make biochemical reactions happen. Like all catalysts, enzymes make reactions happen faster than they otherwise would. Sometimes, much faster.

A good example are the enzymes in biological washing powders that break down stains on clothes.

A more exotic example is the class of oxidative enzymes, generically called luciferase, that produce bioluminescence, including those in fireflies, jellyfish and the sea pansy.

MIT researchers are working on technologies using luciferase to make trees that glow. They have already made a small watercress plant glow for over three hours!

Proteins are also used in industrial biotechnology, life science research and diagnostics markets.

This is where the intersection with DNA analysis comes in. Genes, which are comprised of DNA, have as one of their primary jobs the task of regulating protein production. Based on both biological and environmental factors, genes decide which proteins to produce, in what quantity and for how long.

By studying the proteome – the entire set of proteins expressed by a genome, cell, tissue or organism at a certain time, under certain conditions – researchers and doctors gain a much more powerful window into a person’s overall health than genomic research alone.

Knowledge of the relationship between DNA code and protein sequence has advanced to the point where researchers can now engineer new proteins using artificial intelligence (AI), machine-learning and big data technologies.

To date, most protein engineering work has been done for the pharmaceutical industry. That’s because when a company discovers a drug candidate it needs to also figure out how to produce it reliably, at scale and at a reasonable cost.

But beyond manufacturing, our understanding of proteins is also leading to the development of novel biotherapeutics. And with the help of new protein analysis technologies, we can now study neurological biomarkers in blood, which is helping with treatments for many neurological diseases, cancers and infectious diseases.

The Best Stocks to Play the Protein Trend

What companies are active in the protein analysis market? It depends what type of exposure you’re looking for.

There are many large pharmaceutical companies that manufacture and supply active pharmaceutical ingredient (APIs) and intermediates, including Merck (MRK), GlaxoSmithKline (GSK), Pfizer (PFE), Bristol-Myers Squibb (BMY) and Teva Pharmaceuticals (TEVA).

There are also several diversified players that produce enzymes for pharmaceutical, industrial, ingredient and agriculture markets, including Novozymes (NVZMY), Cambrex (CBM) and Tate & Lyle (TATYF).

Companies that are developing biotherapeutic drugs can give some exposure too. A few larger options include BioMarin Pharmaceuticals (BMRN), Shire (SHPGF) and Sanofi (SNY).

Then there are several companies making and selling instruments and consumables for protein detection and analysis. These include Luminex (LMNX), NanoString (NSTG), Abbot (ABT) and Thermo Fisher Scientific (TMO).

That said, I prefer some of the smaller players that offer pure-play exposure to some special technology within the larger protein analysis market. These are the types of companies that I cover in Cabot Small-Cap Confidential.

As with any relatively early-stage technology/market, these companies do carry a higher risk than the more diversified stocks that have been in the sequencing and/or pharmaceutical manufacturing markets for some time. But the reward is greater too. Which is why I recently added a third protein stock to our portfolio!

If you’d like to learn more about the role proteins will play in the future of personalized medicine grab a subscription to Cabot Small-Cap Confidential by clicking here.

Tyler Laundon

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Tyler Laundon is chief analyst of Cabot Small-Cap Confidential. The circulation of Small-Cap Confidential is strictly limited because the undiscovered stocks with sky-high-potential that Tyler recommends are often low-priced and thinly traded. Don’t share these recommendations!

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