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This Pick Is Just What the Software Engineer Ordered

1 | By Michael A. Robinson

I’m not average.

For one, I’m a bit taller than the average guy. My hair went silver earlier than I expected. And I’m fortunate that it’s easier for me to keep trim than a lot of people I know.

On the downside, I’ve got various allergies and genetic maladies that most folks don’t.

My environment isn’t average either. Here in Silicon Valley and the San Francisco Bay Area, I spend my days in some of the most polluted cities in the United States. Of course, in other ways, this region rates much higher than most of America.

Then there are my habits. For example, I eat well, but don’t get to the gym enough.

I bet you’re the same way – but different.

No one is average.

And that’s why it often seems like maintaining a healthy diet, getting plenty of exercise, and regular checkups just aren’t enough to keep us healthy. If it were, no one would gain too much weight, go bald at 30, or get cancer.

By our very nature, each of us is so unique that this one-size-fits-all approach just isn’t enough.

That’s what opened the door for an emerging field known as precision medicine. The idea here is to set up disease prevention and treatment measures for each and every individual, accounting for your genes, environment, and lifestyle… for my genes, environment, and lifestyle.

Think of it as a partnership – a “convergence” – among traditional medicine, molecular biology, data analysis, and cloud computing.

Doctors and other medical diagnosticians collect our info, and then feed it to the cloud. There software and data scientists can crunch through all that data – and then use what they turn up to prescribe precise disease treatments and preventative measures for each individual.

Mordor Intelligence has run the numbers – and says precision medicine will be worth $59.2 billion by 2021

And I’ve spotted a hidden way to play this hot new field with a stock with which you’ll soon be quadrupling the market’s return…

Enter Mr. Softy

All this makes software engineers and data analysts as important to your health as your physician.

And so it shouldn’t be a surprise that Microsoft Corp. (Nasdaq: MSFT) recently entered this field by striking a new deal with a noted biotech services firm.

Or maybe it is a surprise to you. Hardly anyone thinks of Microsoft as a company at the cutting edge of medical science.

This is a firm focused on software for PCs, mobile computing, and cloud computing. But it’s exactly that last segment that gives Microsoft its precision medicine edge.

Azure is the cloud computing platform that has helped Microsoft turn from an also ran to second place behind Amazon Web Services. (It’s also what makes Microsoft one of our top-performing legal marijuana stocks.)

In its most recent quarter, that Azure unit posted 90% growth. The company also said its commercial cloud yearly run rate reached $20.4 billion in the quarter.

Now here’s how Microsoft is getting involved in precision medicine.

Just two days before that Oct. 26 quarterly report, Microsoft announced a new pact with Parexel International Corp., a privately held biotech research and consulting firm. Parexel helps biotech companies perform clinical trials, control and share data, and track and report patient outcomes.

The two firms say they joined forces so they can help the healthcare industry “deliver on the promise of precision medicine.” And they plan to do so by plugging Parexel’s bioinformatics technology into Microsoft’s Azure cloud platform.

It’s not just about making people healthier – it’s also part of a drive to lower the nation’s $1.7 trillion healthcare tab. And it has the full backing of the U.S. government.

Last year, Congress approved spending some $215 million on a National Institutes of Health Precision Medicine Initiative in order to “pioneer a new model of patient-powered research.” That initial investment includes…

  • $130 million for NIH to develop a database of 1 million volunteers for genetic testing and other data,
  • $70 million to the National Cancer Institute to scale up efforts to identify genomic drivers in cancer, and
  • $10 million to the U.S. Food and Drug Administration to develop high-quality, curated databases to support the regulatory structure needed to advance innovation in precision medicine and protect public health.

Sure, Microsoft’s move into the new sector as one way to play this new field, I think there’s a better way to profit directly from it all. And it should definitely be on your list of stocks to “accumulate” on dips and pullbacks.

But here’s an even better way…

They’ve Doubled Their Sales in Just Five Years

Illumina Inc. (Nasdaq: ILMN) was one of the first firms to try to capitalize on genetic analysis. When it was launched in 1998, major hurdles remained to create a viable business.

Even after a decade, it still cost $1 million to sequence an entire human genome. But Illumina has made rapid progress since then, and its most advanced machines now can perform such tests for just $1,000.

Falling price points have enabled Illumina to build a far larger following. Its sales have doubled in the past five years to $2.4 billion in 2016.

This ability to rapidly sequence genes has opened up a broad range of new medical advances. It’s helping biologists rapidly track new viruses before they can infect entire populations.

It’s helping biotech firms make more advanced drugs. And gene sequencing is now playing a growing role in forensic sciences.

These days, Illumina does much more than help write out a person’s full genetic code. The firm’s high-ticket machines can analyze single nucleotide polymorphing (SNP), bringing deep insights into the root causes of diseases.

Illumina’s systems can identify all of the ways a specific gene can impact a body’s health, an area known as gene expression.

And Illumina is a leading equipment provider in the emerging field of proteomics. This is an even more complex approach than genomics. A genome is more or less constant, but proteomes differ from cell to cell and from time to time.

Look for proteomics to profoundly impact doctors’ ability to spot disease at an early stage. And it will help doctors deploy altered proteins to beat back cancer and other diseases.

Now, Illumina is making a big push into cancer research, thanks to a 2015 agreement with Merck Serono. These two firms are creating a universal test system for clinical trials of targeted cancer therapies.

And that specifically is speeding up the rise of precision medicine.

Get In on Some Startups

The two firms will seek worldwide regulatory approvals, and each aims to bring more advanced medical devices and drugs to the market with this tie-up.

Illumina is a true leader here – with both dollars and brains. It works with the top researchers at the Actionable Genome Consortium (AGC). These are the folks that set the standards for genetic testing in oncology research.

Meanwhile, Illumina has invested $100 million in Illumina Ventures, which is taking stakes in (and providing guidance to) early-stage firms that are working on new uses for DNA sequencing and using genomics to improve human health. Investment targets thus far include SerImmune Inc., Twist Bioscience, Kallyope Inc., and Genome Medical Inc.
The aggressive approach to ensure industry leadership in genomics and precision medicine led Illumina to rank No. 18 on the Forbes World’s Most Innovative Companies 2017 list.

That’s great – but we care about where Illumina is going, not where it’s been.

Even though Illumina has been one of the fastest-growing medical firms of the last decade, it shows no signs of slowing down.

Precision Stock-Picking

Third-quarter sales rose 18%, and adjusted earnings grew a more impressive 34%.

And with more than $2 billion in cash on its balance sheet, Illumina has the resources to extend its industry leadership in genomics far into the future.

The firm spends around $125 million in R&D each year, and a key new area of focus involves agrigenomics. The firm’s agriculture-focused genomics gear is helping plant and animal breeders and researchers identify desirable traits, leading to healthier and more productive crops and livestock.

Shares of Illumina opened yesterday at $205.40, valuing the firm at $30.41 billion. The stock has climbed 62.6% so far this year, better than four times the S&P 500’s 15.5% gains.

And it’s going to keep on beating the market by similar margins for the next decade – or more – because we’re still in the early innings of the precision medicine revolution.

The market, as represented by the S&P, is average.

You want – and deserve – better than that.

You’re an individual.

So you need “precision stock-picking.”

And that’s what we do here.

There’s a great chance Illumina can have a major positive impact on your physical and financial health.

So I hope you take this individualized treatment today.

See you next week.

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