Got $2,500? Check Out These 2 Biotech 2.0 Stocks

Biotech 2.0 is here. Big data is an integral part of the drug development process in practically every corner of the industry. In contrast to the labor-intensive, slow, and small-scale nature of the traditional approach to drug development, the biotechs of the future are fusing computing power and laboratory experimentation, and the results will reshape what it means to make new medicines.

Today, I’ll be discussing two of these front-running biotechs. Neither of them are profitable yet, and they won’t be anytime soon. But they’re both leveraging unique treasure troves of data to develop drugs in ways that no other company can replicate. So, while there’s no guarantee that they’ll turn your $2,500 investment into millions, they’ve got a better shot at doing so than a lot of the other options in biopharma. Let’s take a look at why.

Two scientists work at a lab bench, with one observing the other closely.

Image source: Getty Images.

1. Recursion Pharmaceuticals

With a suite of big data analytics, a powerful software-based drug discovery engine, and an army of laboratory automation tools, Recursion Pharmaceuticals (NASDAQ:RXRX) aims to bring industrial-scale efficiency to the early parts of the drug development process. In a nutshell, it plans to use its extensive set of bio-pharmacological data to perform simulated experiments at scale before proceeding to real experiments in the laboratory. While the company is working on a handful of therapies, its real value is that its drug discovery system could massively cut costs in the development process by making projects fail earlier rather than later. This means that fewer of its early leads become preclinical programs, and fewer of its preclinical candidates go on to clinical trials in humans.

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In case it isn’t clear, in biopharma, failing early is actually a good thing. The more advanced a program gets, the more it costs to continue moving forward. For example, it takes an average of $4 million to conduct a phase 1 clinical trial. By the time a drug candidate is in phase 3 of clinical trials, the expected expenses are typically around $20 million. And if a late-stage candidate fails to demonstrate its efficacy, the scale of the sunk costs tends to make the market very unhappy, causing a company’s stock to tank. So, Recursion’s data-science heavy approach could be a massive competitive advantage if it can prove that its filtering process actually does result in fewer late-stage failures and lower overall costs. 

Recursion’s method might also lead to faster development times if its candidates take less time to validate and confirm their worth in preclinical testing. That would be another key advantage because it would lower the barrier to chasing smaller therapy markets which competitors don’t want to commit the resources to address. So far, the company has opted to push forward with clinical trials for drugs that treat diseases like GM2 gangliosidosis, which has an estimated worldwide prevalence of only 400 people. Targeting barely-there disease markets means that it’s a shoo-in for government aid in the form of orphan drug designations, whereby developers can get tax credits for clinical trials investigating treatments for rare diseases.

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At the moment, Recursion is a speculative purchase because its drug development system is unproven. Still, if it can accomplish what it aims to, it could become a highly disruptive competitor.

2. 23andMe

You’ve probably heard of 23andMe (NASDAQ:ME), the consumer genetic testing company. But there’s a lot more to it than the easy-to-use DNA tests people buy to understand their ancestry and health risks. For every person who sends their spit off to 23andMe’s laboratories for sequencing, there’s an 80% chance that they’ll consent to adding their genomes to its massive database for research purposes. 

With its database, the company hopes to pave the way for personalized healthcare products that use genetic information to inform about things like medicine selection, drug dosing, and ideal lifestyles for individual health. It’s also offering an ever-increasing set of these insights to the consumers who are willing to subscribe to its service after they’ve paid to have their genes sequenced for the first time. 

More importantly for investors, 23andMe also plans to use its data to prevent costly failures in the drug development process. By providing its researchers with large-scale genetic evidence for various therapy directions, it may be able to increase the success rates of its clinical trials while also compressing the time it takes to go from idea to clinical candidate, much like Recursion Pharmaceuticals. And, given how valuable the leads generated from its database are, other companies are willing to pay to buy them directly if 23andMe doesn’t want to develop them itself.

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Currently, 23andMe is moving forward with a few of its candidates using its in-house resources. Time will tell whether other biotechs will take advantage of its leads for sale or if its revenue will continue to be derived from its consumer-facing business until its drug development projects come to fruition. Until then, it’ll still be one of the hottest biotechs to have gone public in 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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