In the not-too-distant future, physicians will likely start treating patients for diseases before they have even developed symptoms. Treatment will be based on the patient’s unique clinical, genetic, genomic, and environmental information
Experts differ about exactly when “personalized medicine” will become a routine part of the health care spectrum, but everyone agrees the key to reaching this milestone is precise molecular diagnostic tests.
Competitors vying to develop those tests range in size and stature. The most well known include large international pharmaceutical companies Abbott Laboratories (NYSE:ABT) and Swiss giant LaRoche. Others are smaller firms: France-based BioMerieux, Cepheid (NASDAQ:CPHD) , Gen-Probe (NASDAQ:GPRO), Illumina (NASDAQ:ILMN ) and Life Technologies (NASDAQ:LIFE ).
There are plenty of others, too. The number of companies actively involved in developing molecular diagnostics increased from less than 100 in 1995 to over 500 in 2010.One look at the size of the opportunity indicates the reason.
Molecular diagnostics, which focuses on genetic and protein reactions at the cellular level, is the fastest-growing segment of the in vitro diagnostics industry. With double-digit growth predicted during the next few several years, the market is expected to reach $8-billion worldwide by 2015. Major factors driving growth include increased availability of various tests, increased incidence of chronic diseases due to an aging population and pharmacogenomics/personalized medicine.
One investment bank estimates that Illumina owns a 50%-60% share of the key growth areas in the life sciences research market, while its closest competitor, Life Technologies has a 20% slice. Both stocks have been on a roll the past several years.
Life Tech is trading at just below $52, just off its 52-week high of $56.73 in early January. Revenue has been growing at a 10%-20% rate for several years as the market for the company’s products continues to grow. Its last earnings report on Feb. 3 beat forecasts, though shares fell after guidance failed to top consensus.
Still, Life has a lot going for it: an excellent portfolio and pipeline, a wealth of patents and licenses, strong margins, more than 50,000 products, 75,000 customers and presence in 160 markets. Selling at a P/E of under 27, Life seems to have good upside, especially over the long haul.
Illumina, meanwhile, sells at a whopping multiple of more than 77. Maybe that’s the reason the stock was downgraded twice in the past two months. In just the past year, Illumina’s shares have climbed more than 70%. As recently as 2005, investors could have picked up this stock for $2 a share. Now, it’s above $63. Ouch.
Illumina continues to turn in outstanding results. It recently reported a 35% jump in revenue while profit rose more than 70%. With company earnings expected to grow 30% in 2011 on a sales gain of 20%, there’s still a lot to like about this stock. Mutual funds certainly do. They own more than three-quarters of the company shares.
