The following is a guest post by Tyler Laundon, Chief Analyst, Cabot Early Opportunities
While COVID-19 has taken center stage for the past year, there remains a huge need for advance testing, treatment options and cures for other diseases. That points toward personalized medicine and next-generation genomic sequencing (NGS) solutions.
There are many players in the sequencing market, each of which offers a different twist and exposure for investors.
Among the most intriguing sequencing stocks are 10x Genomics (TXG), NanoString (NSTG), NeoGenomics (NEO), Guardant Health (GH), Adaptive Biotechnologies (ADPT), Personalis (PSNL) and Pacific Biosciences (PACB).
Today, let’s take a closer look at three of these genomic sequencing stocks: 10X Genomics (TXG), Adaptive Biotechnologies (ADPT) and Personalis (PSNL). All three stocks have been hit hard during the recent growth stock sell-off; but there’s reason to believe that all three should rebound once the market stabilizes.
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Sequencing Stock #1: 10x Genomics (TXG)
10x Genomics (TXG) is an early-stage genomics tools company developing solutions to analyze biological systems at incredibly high resolution and massive scale. It has a market cap of $16.6 billion.
The company’s products are used by nearly all of the top 100 global research institutions and top 20 global pharma companies, which rely on 10x’s solutions to make major discoveries in oncology, immunology and neuroscience.
The company’s product portfolio is built around Chromium and Visium instruments, consumables, and software. These genetic testing solutions give researchers the power to measure biology at the highest level of resolution, such as at the single cell level, or at high spatial resolution of tissues and organs.
The bulk of revenue comes from academic markets, but the company also has exposure to government, biopharma and biotech customers. As with many companies in the sequencing market, consumables play a huge role (over 80% of revenue) and help smooth out fluctuations in instrument sales.
Analysts are generally positive on 10x Genomics’ stock and refer to the long runway of growth afforded by the company’s dual focus on affordable single cell (Chromium) and spacial (Visium) biology platforms. Visium is a newer platform that’s enjoyed a strong launch.
The company just wrapped up its 2020 fiscal year during which revenue grew by 22% to $299 million. Growth was impacted by the pandemic and should re-accelerate to roughly 67% (to $500 million) in 2021, when adjusted EPS loss should improve by 82% to -$0.98.
Sequencing Stock #2: Personalis (PSNL)
Personalis (PSNL) is a cancer genomics company offering next-generation sequencing (NGS) solutions and data analysis services to support personalized cancer vaccine and cancer immunotherapy development. It also provides sequencing and data analysis for population sequencing projects. It has a market cap of $1.1 billion.
Customers of cancer genomic services are primarily pharma and biotech companies, universities and non-profits. Customers of population sequencing initiatives are led by the U.S. Department of Veterans Affairs (VA).
The value of this company derives from its proprietary ImmunoID NeXT Platform, which provides customers with complex genomic info from both tissue and liquid biopsy samples. Altogether, Personalis is going after a roughly $40 billion market, based on test prices that range from $2,840 to $4,000 a pop. Its main markets are in the U.S. and Europe.
The company generated revenue of $65 million in 2019, up 73%. In the most recent quarter (Q3 2020), revenue was up 16% to $19.8 million while adjusted EPS of -$0.27 was down from -$0.22 in the year-ago quarter.
Fourth-quarter results, out in late February, were strong, with revenues up 11% to just over $20 million and signs that 2021 revenue growth could be around 10% or more to help pull PSNL out of the current correction, which has sent the stock down more than 54% from its January high of 53.5.
Big picture, Personalis should do well because there is a growing need for genomic data in immune-oncology and cancer drug development. The opportunity in liquid biopsy is especially exciting. While the company is early-stage and has faced challenges due to the COVID-19 pandemic, the pipeline of new products and a likely boost to volumes post-COVID portend good things in the second half of 2021 and beyond.
Sequencing Stock #3: Adaptive Biotechnologies (ADPT)
Adaptive Biotechnologies (ADPT) has become a leader the immune-driven medicines market, which is approaching $50 billion across research ($1 billion), diagnostics ($16 billion) and drug discovery ($31 billion). The company has a market cap of $5.7 billion.
Adaptive has developed a platform that characterizes genetic code of the body’s adaptive immune system. The platform sequences T-cell receptors (TCR) and B-cell receptors (BCR), maps receptors to antigens, pairs receptor chains, and identifies drug candidates that could be potential therapies.
The current focus is development of products to diagnose, treat and monitor diseases, including certain cancers, Lyme disease and COVID-19. One of Adaptive’s many areas of growth is ClonoSEQ, which is used to detect and monitor minimal residual disease (MRD) in bone marrow from patients with multiple myeloma, B cell acute lymphoblastic leukemia (ALL) and lymphoblastic leukemia (CLL). The number of treatable patients is expected to double in 2021.
Additionally, Adaptive has recently launched its T-Detect COVID-19 test, which can confirm past COVID infections by looking at T-cells. Next up is T-Detect Lyme, and tests for Crohn’s and Celiac are in the pipeline for 2021.
Finally, in drug development the company is working with partner Genentech for a TCR candidate that could work in multiple solid tumors. It is also working with Amgen to develop therapeutic antibodies to treat or prevent against various strains of COVID-19.
Adaptive is a high-growth company, though the pandemic has taken a toll. Revenue grew by 53% in 2019 to $85.1 million. Fourth-quarter 2021 results were solid, and full-year 2020 revenue growth was 15.6% to just under $100 million.
Looking out into 2021 current consensus estimates call for growth to re-accelerate to 52% ($150 million) and adjusted EPS loss of -$1.74.