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2 Winners for a Drug Development Future That Looks Nothing Like the Past

Things happen slowly and then all at once. At least that's how the saying goes. In hindsight, the pandemic may have been that turning point for gene-based medicine. The authorization of the first vaccines using messenger RNA validated a segment of the life sciences industry that seemed destined for some futuristic version of healthcare. All of a sudden, it is responsible for a life-saving vaccine and spreading rapidly from the laboratory to clinical trials.

Genome sequencing and gene editing have been around for several years. However, new developments in each field are opening up doors that had been closed, and combining to usher in a new era for genomics. At the forefront are Pacific Biosciences of California (NASDAQ: PACB) and Beam Therapeutics (NASDAQ: BEAM). Each offers an upgrade from a technology that itself disrupted the status quo not long ago.

Two lab researchers inspect a sample.

Image source: Getty Images.

1. Pacific Biosciences

Applications for genomics have expanded as the cost of sequencing a human genome has gotten cheaper. It cost about $10 million in 2007. Now, the price is only about $1,000. Until recently, that hadn't made much of a difference for PacBio. It has played second fiddle in the genome sequencing industry since its founding in 2004. The company has a market cap less than one-tenth of industry leader Illumina and generated only $79 million in revenue last year compared to Illumina's $3.2 billion. However, technological advances are putting the company at the front of the next wave of sequencing.

Unlike Illumina's sequencers, which take short fragments of DNA and reassemble them after they are read, PacBio uses lasers to read long strands of genetic material. This allows it to decode long repeating patterns. It's a more expensive approach, but it turns out those long patterns -- or the lack of them -- are often associated with genetic diseases. While current short-read sequences range from 50 to 700 base pairs in length, long reads can be 10,000 to 100,000. In some instances they can span up to 2 million. That capability recently allowed researchers to sequence the entire human genome -- including the 8% that was missed in the human genome project of the 1990s.

Illumina knows the next stage of sequencing is coming. It agreed to acquire PacBio for $1.2 billion in 2018. The deal was scrapped in early 2020 as regulators in the U.S. and Europe signaled concerns. Looking at a future on its own, PacBio is collaborating to increase the adoption of its instruments. First, it developed a whole-genome sequencing assay with Laboratory Corporation of America and the Centers for Disease Control and Prevention. Next, it partnered with diagnostics company Invitae on a high-throughput, whole genome platform for clinical testing applications.

Management estimates the addressable market at $20 billion and reported record installations of its new Sequel II and IIe systems in the first quarter of 2021. After years of pointing to the future, whole genome sequencing is becoming an essential tool in understanding and treating disease. For PacBio, the future has arrived.

2. Beam Therapeutics

Bacteria use a system of clipping fragments of genetic material from viruses and storing them for recognizing and fighting them in the future. When this technique -- called clustered regularly interspaced short palindromic repeats (CRISPR) -- was fully understood, it ushered in a new age of genomics. It's been less than a decade since, and CRISPR has become widely used in conducting experiments, designing drugs, and even creating heartier agriculture. However, it isn't perfect. There can be inadvertent, or off-target, edits along with the desired ones. That's one reason a new gene-editing approach is gaining traction.

There are 3.2 billion base pairs in the human genome and they are made up of four types of bases, or letters: adenine (A), cytosine (C), guanine (G), and thymine (T). If CRISPR represents a pair of gene-editing scissors, base editing is more like an eraser and pencil. Where CRISPR causes a double-stranded break in the DNA, a base editor only changes a single letter. This more precise method is why some have referred to base editing as CRISPR 2.0.

Beam Therapeutics has the exclusive license to use certain base-editing technology for all applications. The company is pursuing various targets but is farthest along in tackling the blood disorders sickle cell disease and beta Thalassemia. Sickle cell has been an especially popular target for gene editing as it is caused by the mutation of a single letter in the gene for hemoglobin -- the substance that carries oxygen in red blood cells. Beam also has pre-clinical programs in oncology and liver disease, as well as diseases of the eyes and central nervous system. The company has continued to iterate its approach to create the most effective gene-editing mechanism.

Its most recent innovation was showcased in December, when it shared results from an approach it calls inlaid base editing. It edited more than 70% of the blood-progenitor cells from a sickle cell patient in a cell culture. These stem cell descendants can form many different kinds of specialty cells, including those that help carry oxygen in blood. Editing the point mutation (single letter errors) offers a more direct way to cure a patient of the disease than the traditional CRISPR method alone.

Beam's next step is seeking FDA approval to try its base editing in humans. It plans to file an investigational new drug application in the second half of this year. If successful, it could leapfrog the current crop of companies using CRISPR to target the blood disorder. That could be the first of many diseases base editing allows the company to cure.

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Jason Hawthorne owns shares of Illumina. The Motley Fool owns shares of and recommends Invitae. The Motley Fool recommends Illumina. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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