Invest in Gene Editing or Synthetic Biology?
The big news this past week was something so significant and remarkable that it should have been the topic of conversation at every water cooler everywhere. While Microsoft’s AI bot tweeted out racial insults to anyone that would listen, and the circus of U.S. presidential election candidates exchanged even more schoolyard insults, a genius named Craig Venter managed to create a synthetic cell with the smallest genome of any known, independent organism. After 20 years of research, Mr. Venter created an entire new species that we can build upon to create cells that produce drugs, biofuels, chemicals, and anything else we can dream of.
So how is this different from back in 2010 when Mr. Venter first created a synthetic life form? The difference is that when this first synthetic life form was created, it simply involved inserting an existing bacterial genome into another cell. This resulted in a truly artificial life form but one that was still very complex. Since then, Venter’s team has been deactivating genes one by one to see which genes were required for life to exist. Notice how this involves adding and subtracting genes, not editing them.
Gene is a segment or a portion of DNA molecule while genome is the total DNA content in a cell.
Venter used a bacteria called “mycoplasma mycoides” that exists in the stomachs of vegetarian mammals like cows or goats. By adding and subtracting genes from their target genome for this bacteria, Venter was able to isolate the minimum number of genes required for life to still exist which turns out to be 473 genes. This is a remarkable feat and should cause us to ask, how can we invest in this technology? This particular type of technology is called synthetic biology and we’ve compiled a list of 7 Synthetic Biology Stocks that you can invest in. The biggest of these stocks by far is Intrexon (NYSE:XON) which is up just +20% from their IPO in August 2013:
We’ve talked before about XON’s ECC business model which takes in diversified revenue streams from companies who license their technology to build commercial products. One example is the Artic apple that doesn’t turn brown which received FDA approval. The takeaway for investors is that if you want to invest in the biggest and most promising company in the field of synthetic biology at the moment, XON is the one. What about valuations you might ask? Well if you think this is the next Microsoft, then buying at any point right now won’t make that much of a difference. You can use dollar cost averaging when building a position in any stock in order to avoid trying to time the market.
So how does “gene editing” fit into all of this? Gene editing is looking to shortcut the whole process of adding and subtracting genomes by instead just editing the genes themselves. We talked before about how there are a number of gene editing techniques being used, and at least 7 different gene editing startups are pursuing this in the midst of some high profile legal battles that are in progress. One of these startups, Editas (NASDAQ:EDIT), had an IPO recently which is up over +80% to date:
After the Editas IPO, we waited for the dust to settle before building a position in light of the hype around biotech in the past year, the fact that legal battles are still underway, and we would be inclined to think that we’re on the cusp of a bear market. Since that IPO, EDIT has nearly doubled with the price sitting at $34 a share giving Editas a market cap of $1.5 billion versus XON at $4 billion. Here’s a look at the financials for both of these companies:
So why did EDIT choose to IPO right when the window was closing for biotech IPOs? Could it be that the VCs wanted to cash in before the results of the legal battles came in? When Editas conducted their road show prior to the IPO to convince institutional investors to buy shares, this topic would have had to come up. EDIT would have had to give compelling evidence that their legal battles were nothing to worry about. So where does this leave retail investors?
The best thing to do is buy both XON and EDIT. With equal weighted positions in both EDIT and XON, you would the have skin in the game for both synthetic biology and gene editing. Another approach could be to take the Nanalyze Synthetic Biology Stocks motif of 7 stocks, add EDIT to it, and then buy the basket of 8 stocks for $9.95. Either way, owning XON and EDIT covers both bases for now.
As retail investors, these are two pure plays that give us exposure to both gene editing and synthetic biology with each company run by the leading experts in each field. As with all disruptive technologies, have realistic expectations and don’t bank on either of these companies being next Microsoft that will fund your retirement.
Pure-play disruptive tech stocks are not only hard to find, but investing in them is risky business. That's why we created “The Nanalyze Disruptive Tech Portfolio Report,” which lists 20 disruptive tech stocks we love so much we’ve invested in them ourselves. Find out which tech stocks we love, like, and avoid in this special report, now available for all Nanalyze Premium annual subscribers.