Biotechs: The Ultimate Gamble Part 2

Welcome back. Today I’ll be continuing my discussion on biotechs. In particular, the risky nature of biotech stocks and why that is.

As I mentioned yesterday, biotechs have a long history of overnight success and failure. A fact that usually comes down to clinical trials. The process that tests whether a drug really works or not.

For the companies that go through this process it can be incredibly stressful. Their entire future as an organisation can often be on the line.

One bad result could send them bankrupt. Or conversely, a good result could be like winning the lottery. It can be a rollercoaster of emotions for everyone involved.

In fact, the only people likely to get a kick out of it are the hard-core speculators. People that are usually looking for lucrative bets rather than sound investments.

That could all be about to change though.

As I teased yesterday, researchers may have found a way to make biotechs less of a gamble. They’ve harnessed a tool that could predict the results of clinical trials before they’re even finished.

With this tool biotech companies may be able to effectively de-risk the clinical trial process. They could see whether it was worth testing a new drug before they even begin testing.

It’s taking the randomness out of cause and effect. And it’s all possible because of genetics.

It’s called Mendelian randomisation…

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Mendelian Randomisation: The genetic lottery

As you’re almost certainly well aware, our genes are random. The only certainty is that they come from your ancestral lineage in some form.

These random genes play a huge part in who we are and what we do. They affect the way we live our lives and the things that we enjoy.

Furthermore, these genetic influences can’t be tampered with. It doesn’t matter what you do, if it’s written in your genes then you’re stuck with it.

For the most part these influences are pretty benign. Some though may dictate whether you’re more likely to be a heavy drinker or smoker for instance.

Honestly, it’s not so much what these genes do for us, it’s the fact that we know they’re there. Once we’ve found them, we can start grouping people by the same genetic code. From there we can work backwards from the gene to come to certain conclusions about its effects.

Think of it like this: Our research shows that higher levels of a certain gene, let’s call it gene X, make people immune to the flu. Normally companies would start looking at ways to make a drug that artificially boosts levels of gene X, thereby making everyone immune to the flu.

That drug would then go through the clinical trial process to prove whether it works or not.

Our problem, as I discussed yesterday, is that we don’t know if gene X is the ‘cause’ of this immunity. Some other bodily function may make us immune to the flu as well as increasing the levels of gene X. Meaning the two are correlated but one does not cause the other.

However, thanks to Mendelian randomness we can confirm if gene X is the cause without the need for a trial. 

Essentially we would round up as many people with naturally high levels of gene X as possible. Our aim is then to see if these people really are immune to the flu. If they are immune, then our research and hypothesis should be correct. Gene X really may be the key to ridding humanity of the flu.

We could then push ahead with clinical trials knowing fairly certainly that it will work. At least in some regard. We’d just have to find the right method for increasing gene X for everyone.

If however, people with naturally high levels of gene X weren’t immune to the flu then we know something else must be going on. We could refocus our research efforts to look for the real solution. But, in the meantime we haven’t wasted years and millions of dollars on clinical trials that were doomed to fail.

This is the beauty of Mendelian randomness.

An end to uncertainty

With the help of this amazing tool we could finally bring an end to the gamble of biotechs.

It is by no means perfect, but it is a lot better than relying on blind luck. And for investors as well as the biotech companies developing new drugs it could be a revelation.

In fact, some pharmaceutical firms are already putting Mendelian randomness to good use. It could lead to an explosion of new research and development. A chance to follow-up on discoveries without risking precious time and money.

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Furthermore it could prove useful in more than just the pharma industry. As the MIT Technology Review states,

By identifying genetic variants that predispose individuals to be fatter or leaner, that influence how they metabolize alcohol and thus whether or not they are likely to become drinkers, researchers can begin to isolate the effect of these “exposures” on everything from depression, schizophrenia, and other psychopathologies to earning power and even academic achievement. 

An explosion of studies—more than 250 so far this year—have tried to answer such questions about the human condition, sometimes using hundreds of gene variants tied to the trait being studied: whether being taller, for instance, causes men to earn more (apparently yes, with an extra two inches being worth $1,000 to $2,000 a year), whether neuroticism leads to smoking or vice versa (still unclear), whether wearing glasses turns people into bookworms (apparently the opposite—it’s the studying that causes myopia), and whether cannabis use can contribute to schizophrenia (leaning toward yes).

As we learn more about our genes, we continue to learn more about how they impact our lives. It’s incredible to think that they really do play this big a role in defining who we are. It’s also a little scary.

Nevertheless, as we delve further into the world of genomics I suspect we will learn even more. Someday in the future, people will look back and wonder how we could be so ignorant.

For now though, at least we may finally have found some medical certainty.


Ryan Clarkson-Ledward,
Editor, Tech Insider

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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