Two years ago, I didn’t know anything about biotech. And I didn’t care either.
There’s a fair chance you feel the same way. It’s a tiny niche in the world of investing. It’s hard to understand and it’s not part of your everyday life, and the financial media don’t cover it much.
I think the reason you don’t hear a lot about biotech companies is that you rarely find investing knowledge and scientific knowledge in one person. The scientists don’t understand investing and the investors don’t know about the science.
Anyway I started to get into it in about 2012 through my work with Tom Bulford. I’ve been working with Tom for almost three years on his investment newsletter, which is completely focused on biotech companies.
You might remember Tom. He used to write Penny Sleuth. But you might not know – the reason he stopped writing it is because he was learning more and more about the biotech industry, and he wanted to dedicate himself to it full-time. His timing has been immaculate. The industry started to boom around 2013 and it shows no signs of slowing down.
Tom has a rare skill set. He’s an experienced investor, and he’s spent years learning about biotechnology. Working with Tom every week, I’ve picked up a few things myself. It’s hard not to get into it!
So today, I’m going to take a stab at explaining a massive new development for biotech companies.
A gala biotech ball
Last November at a NASA base near Silicon Valley, in the skeleton of a giant hangar once used to build zeppelins, the great and the good came together for a black-tie awards ceremony.
Facebook CEO Mark Zuckerberg organised the event and the likes of Cameron Diaz, Benedict Cumberbatch and John Hamm turned up. But it wasn’t a normal showbiz awards night. They all came to celebrate a scientific breakthrough.
That night, Dr Jennifer Doudna and Dr Emmanuelle Charpentier were awarded the 2015 Breakthrough Prize, and $3m, for their work on something called “CRISPR”. It’s reported the Nobel Prize could be next.
CRISPR stands for “clustered regularly interspaced short palindromic repeats”. Allow me to explain why investors are putting their money behind CRISPR – what MIT Tech Review is calling “the biggest biotech discovery of the century”.
What DNA does
You’ll have heard of DNA before. DNA is the instruction manual for how to build living things. The differences between all cells, individuals, and species ultimately go back to their DNA. DNA tells all living things what to be.
The entire purpose of biotech is to manipulate living things – for example by cleverly cross-breeding two types of plant, or by repairing organ tissue.
So if DNA is the instruction manual for how to build living things, and the entire point of biotechnology is to manipulate living things, you can see that having the ability to change DNA would be a pretty big deal. That’s what CRISPR does.
Dr Doudna and Dr Charpentier have figured out how to write their own instruction manual for how to build living things.
Clearly, this is a massive discovery, with lots of applications (more on those later). That’s why scientists and investors are so excited about it.
As an investor, strictly speaking that’s all you need to know. But in case you’re interested, here’s a quick aside on how CRISPR works.
How to write DNA
CRISPR wasn’t invented – it was discovered.
In 1987, Japanese scientists noticed that some single celled organisms (such as bacteria) had a weird DNA sequence and attached enzyme, for which they couldn’t find a use. That was CRISPR.
It turns out that CRISPR is used to defend bacteria against viruses. Viruses attack and kill bacteria. But bacteria have a hard time recognising viruses, because there are many many different types of virus.
CRISPR works like this: when it finds a virus, the attached enzyme latches onto its DNA and very precisely “snips” it open. Then the enzyme attaches the virus DNA to that “weird DNA sequence” I mentioned earlier – to CRISPR.
CRISPR is then used to store the virus’s DNA, so that the bacteria can recognise and attack viruses of that type in the future. It works like a “most wanted” list for nasty viruses.
The part which interested Dr Doudna, though, was the way the CRISPR enzyme was able to precisely snip the virus’s DNA open and then “write” its DNA onto the CRISPR DNA.
That was the start of the trail. Five years later, Dr Doudna and her team had figured out how to harness CRISPR. They were using CRISPR enzymes to cut, paste and write DNA. They learned how write their own “instruction manual for living things”.
A “scientific stampede”
The big breakthrough happened in 2012. Since then, scientists and entrepreneurs have been using the technique in all sorts of ways.
There are scientists working on editing elephant DNA to revive the woolly mammoth, curing genetic disorders such as cystic fibrosis, and creating ultra high-yielding crops. Doctors say that we will even be able to edit the genes of human embryos in the near future.
Qanta magazine calls it a “scientific stampede”. And at the same time, entrepreneurs have been building companies based on the new technology.
Tom Bulford first relayed this story to me back in 2014, and he’s been covering it in much greater depth in the newsletter. This Sleuth is just a quick summary of what’s happening in the labs and the markets, to give you a flavour of why biotech is an interesting opportunity at the moment.
So what do you think – is investing in biotech of any interest to you? Have you started paying attention to the sector recently, like me? Or do you think it’s totally overrated?
I’d be interested to hear your thoughts either way. Get in touch at [email protected].
Until next time,