Time to invest in precision medicine? Kames Capital says sector can deliver “outsized returns” to early investors

Rapid advancements in precision medicine like DNA sequencing have the potential to be as transformative as the discovery of penicillin, giving long-term investors the opportunity to tap into a powerful multi-decade trend likely to deliver outsized returns, according to Kames Capital’s Andrei Kiselev.

Driven by rapid improvements in the speed, scope, and cost of gene sequencing technology, the world of healthcare is undergoing a ‘profound change’, says Kiselev, co-manager of the Kames Global Sustainable Equity fund.

He points out that drug development has historically been based on the premise that all patients with a particular condition would respond to the same medication in a broadly similar manner. “Unfortunately, this central tenet of drug development rarely, if ever, has held true in practice”, he says. “That has meant that while all the patients with the same condition received identical first-line treatment, it only showed efficacy some of the time.

“Worse still, in many cases, the treatment would come with severe side effects for the patient, as well as potentially high costs to the healthcare system. To make meaningful progress in severe, high-incidence diseases like cancer, a more targeted approach to drug development and application has been required. That’s where precision medicine comes in.”

Precision Medicine is an approach to disease treatment and prevention that takes into account individual variability in genes, environment, and lifestyle. It is a shift away from the one-size-fits-all approach, allowing clinicians to stratify patients into subgroups with distinct disease sub-types and likely treatment responses.

“At the heart of this approach are ever-growing sets of individual-level health data, which, alongside the clinical details of an illness, provide physicians with comprehensive information on what is happening with the patient’s cells at all stages,” says Kiselev. “This helps doctors to decide on the best type of treatment. For example, depending on a specific genetic mutation, some cancer patients tend to respond better to chemotherapy than others.”

While the first human genome took 13 years to fully decode at an estimated cost of $2.7bn, Kiselev says the subsequent pace of progress has been “dramatic, with cost deflation significantly outpacing Moore’s Law in semiconductor manufacturing. Today, the cost of sequencing the necessary parts of a human genome (the exome) has fallen below $1000, making it essentially a routine test”.

One potentially transformative application of DNA sequencing is the ‘liquid biopsy’, which avoids the need for invasive surgery to obtain tumour samples. This allows for routine, non-invasive preventative screening, and early detection at a greatly reduced cost, with the potential to significantly improve patient outcomes.

With precision medicine offering substantial societal benefits as well as strong investment returns, Kames is investing in the field through its Global Sustainable Equity fund, as well as other Kames equity strategies.

Favoured stocks include Illumina, which is at the vanguard of innovation in the field of gene sequencing; Veracyte, whose genomic diagnostic tests are helping doctors decide on the best course of treatment of different types of cancer; and Exact Sciences, which has a precision oncology business along with a best-in-class test for colon cancer.

“Once you begin to consider the amount of money spent annually on drug development, clinical trials, wasted prescriptions and mis/under-diagnosed diseases, you can see how precision medicine is going to be a large, powerful, multi-decade trend that has the potential to deliver outsized returns for long-term investors,” says Kiselev.

“In terms of its scope and effects on the quality of healthcare, it has the potential to be as transformative in the long-term as the discovery of penicillin was to the treatment of infections, or the discovery of microbes to our understanding of biology. It is much less binary in nature though – one could argue that medicine has always sought to be as precise as possible. Modern tools have vastly increased the scope of this precision.”