Science + Math = an awesome combination for driving a Company’s valuation higher. We’ve seen it across many industries that includes Internet, mobile and consumer e-commerce.
Just look at what our daily lives have been impacted with over the last 20 years. We’ve seen tremendous advancements in technology that have taken mathematic principals to change how we shop, travel, communicate, search, care for our bodies … almost everything related to our daily lives.
And we are not talking about some geeky, off-the-path technology that no one can practically use, we are talking about businesses that have launched and are now part of our everyday lives. Amazon.com, AirBnB, Facebook, Google, the list can go on and on of examples of how mathematics has been leveraged to develop technologies thus creating disruptive businesses, with significant valuations and tremendous shareholder returns.
… And now, we are seeing similar patterns in how science and math are being applied to the medical industry.
Here at The Money Street, we are always searching to find repeatable business strategies being applied in categories and undiscovered companies that allow for us as a collective group to profit from.
Guess what, we have found just that!
Our Health Care Trends Team have been researching larger pharma, biotech and medical technology advancements that have happened over last few decades, and in doing so spotted an emerging trend with how mathematics and technology is being applied to modern medical diagnostics in ways never seen before.
As a result, advancements have been made that enable innovation cycles significantly. It is becoming clear that not only is Google, Facebook and Tesla applying math and technology to lead their fields, but emerging Med Tech companies are using the same combined technology and mathematical principles to create advanced algorithms, and then applying them to create products and solutions that enable massive innovation and financial opportunities for investors like us.
In a nutshell, today’s medical advancements are something investors like us need to be a part of, and windows like now we need to take advantage of. Companies like Co-Diagnostics, Inc. (Nasdaq: CODX $4.89), our most recent Featured Companies are positioned perfectly in the Med Tech Industry and we believe you should be joining in with us in our long positions.
First, let’s dive into the overall segment of Med Tech and illuminate why we believe we are just seeing the tip of the iceberg of where medical innovation will be heading.
The one sub-segment that we find most interesting and representing massive growth opportunities is in the molecular diagnostics industry.
What is molecular diagnostics?
It is defined as ”a collection of techniques used to analyse…the individual’s genetic code…The technique is used to diagnose and monitor disease, detect risk, and decide which therapies will work best for individuals.”
We like to think of it is as a way for patients to get custom-fitted for the best drug therapies to treat their specific ailments. The days of taking a bunch of drugs and HOPING for a positive outcome are going to be distant memories. By deciphering their genetic code, patients will stand to have a higher positive outcome by customizing the drugs they take and the dosage needed.
The Future is NOW with Polymerase Chain Reaction
There’s been a tremendous amount of work that has resulted in new molecular methods that have revolutionized the detection and characterization of microorganisms in a broad range of medical diagnostic fields, including virology, mycology, parasitology, microbiology and dentistry.
Among these methods, Polymerase Chain Reaction (PCR), has generated great benefits and allowed scientific advancements and allowed for the rapid detection of pathogens, including those difficult to culture.
So what is PCR?
Polymerase chain reaction (PCR) is a technique of producing a number of replicas of a particular DNA sequence, which involves recurrent reactions with a polymerase. This method is highly efficient in the detection and the monitoring of genetic diseases and is extremely useful in studying the operation of targeted segment and forensic examinations.
To learn more, watch this step by step video of the PCR process:
PCR technologies are used in various fields such as biotechnology, drug discovery and clinical diagnostics. Common uses include:
In diagnosis of disease such as tuberculosis, AIDS, middle ear infections and Lyme diseases
For DNA sequencing and DNA cloning procedures in microbiology and molecular biology
In forensics to identify criminals and child identity
To identify cultures and microorganisms that cause diseases
Real-time PCR is an off-shoot of PCR and its technological innovation has allowed it to have an ever-increasing role in clinical diagnostics and research laboratories because it is fast and accurate.
Companies continue to develop commercial business opportunities around PCR-based products that include:
We love to hear that companies are now taking laboratory research and turning them into real business opportunities!
The PCR Market
The growing demand for innovative molecular diagnostic techniques in the accurate identification of diseases is boosting the global PCR market significantly. Constant advancements in diagnostic techniques are also driving the growth of this market.
According to a July 2017 research report of the industry by Research and Markets, it is estimated that the global Polymerase Chain Reaction market is expected to reach $12.56 billion by 2022 growing at a CAGR of 8.8% during the forecast period.
There are major players in pharma that are heavily involved in the industry. Although for our criteria they are too big and mature to make an investment for a nice gain, it is good to know a bit about the bigger players in this market.
Major market leaders include:
- 1 Abbott Laboratories
- 2 Roche (F. Hoffmann-La Roche Ltd.,)
- 3 Thermo Fisher Scientific
- 4 Agilent Technologies
- 5 Bio-Rad Laboratories Inc.
Please take some time to research some of the recent headlines from the major market companies about their activities in molecular diagnostics provide their on-going participation in this growing sector. During our research, we found this helpful to cement our thesis.
Price: $49.34 USD; Market Cap: $85.48B
(Sources: Google Finance; Yahoo Finance; MSN Money)
Abbott to Launch Next-Generation MDx System (source: GenomeWeb)
Abbott Laboratories expects to launch a next-generation molecular diagnostics platform and menu for high-volume testing in the clinical laboratory outside the US in the second half of 2017, and in the US in 2018. The new system will be fully integrated, automated, and enable random-access qPCR testing, but will maintain a similar footprint to the firm’s m2000 system.
“The next-generation platform is completely new,” John Carrino, vice-president of research and development at Abbott Molecular, told GenomeWeb in an interview.
“A lot of time was invested upfront to understand the needs of end users … and this system was developed from the ground up — new hardware, new software, and new disposables.”
It will also exist in parallel with Abbott’s m2000 MDx platform that first received US Food and Drug Administration clearance in 2010. However, the firm anticipates that the next-generation system, which was first briefly mentioned to GenomeWeb in 2014, will ultimately replace that model. “We’re building on the high reliability and the excellent test performance we have on assays on the m2000, so we see the two co-existing for quite a while.”
Abbott is also undertaking other initiatives to address customer needs, developing next-generation platforms across all of its businesses — blood screening, hematology, immunoassays, clinical chemistry, and point-of-care testing. These will also “focus on ease of use and higher throughput, while always keeping in mind footprint.”
Price: $31.80 USD; Market Cap: $209.945B
Roche Introduces New Generation of Diagnostics Products - Expands cobas Liat PCR System menu with launch of cobas MRSA/SA test to target healthcare-associated infections
July 3, 2017 (source: Roche Media Store)
The cobas MRSA/SA nucleic acid test for use on the cobas Liat System for the qualitative detection and differentiation of methicillin-resistant Staphylococcus aureus (MRSA) and Staphylococcus aureus (SA) is now available in countries accepting the CE mark and ideal for use at the point of care. This menu expansion serves specific needs of European markets. This is the first real-time PCR test that simultaneously detects MRSA and SA with one sample in less than 30 minutes. MRSA and SA are both significant sources of healthcare- and community-associated infections.
Price: $176.35 USD; Market Cap: $68.98B
Thermo Fisher Scientific Acquires Linkage Bio
Jul 12, 2017 (source: Genomeweb)
NEW YORK (GenomeWeb) – A Thermo Fisher Scientific spokesman today confirmed the company’s acquisition of Linkage Biosciences for an undisclosed amount. Following the transaction, completed on Monday, Linkage is now part of Thermo Fisher’s transplant diagnostics business, One Lambda. Based in South San Francisco, California, Linkage develops and markets molecular diagnostic technologies for complex genetic testing. Its flagship product line is LinkSeq, a real-time PCR genotyping technology. Linkage provides HLA-typing kits, KIR-typing kits, HPA-typing kits, instruments such as liquid handler kit instruments, and accessories, according to the firm’s website.
In a July 11 letter to customers, Parisa Khosropour, president of Thermo Fisher’s transplant diagnostic business, said that with the acquisition, that business now serves more than 1,000 transplant centers across more than 60 countries.
Benefits stemming from the acquisition include a broader and deeper range of products, a continued commitment to innovation, and expanded support globally, the letter said.
Zachary Antovich was president and CEO of Linkage. It is unclear if he is remaining with the firm.
Thermo Fisher Scientific Gets CE-IVD Mark for QuantStudio Dx System
Jul 31, 2017 (source: Genomeweb)
NEW YORK (GenomeWeb) – Thermo Fisher Scientific announced today that it has received CE-IVD marking for its QuantStudio 5 Dx Real-Time PCR system for sale in Europe.
The instrument’s multi-modal software enables users to operate it in either test-development, research-use-only (RUO), or in vitro diagnostic (IVD) mode. Thermo’s said that the system is designed to benefit clinics, hospitals, and diagnostic test developers performing molecular biology testing using qPCR.
“Today’s molecular diagnostic laboratories and developers require high-performing qPCR systems that can be seamlessly adopted into their IVD workflow” Will Geist, vice president and general manager of qPCR for Thermo Fisher, said in a statement.
The company said that the platform has seen strong adoption since its introduction, but did not elaborate. Earlier this year, Thermo Fisher and Seegene jointly announced a collaboration to file for US Food and Drug Administration approval of Seegene’s Allplex diagnostic assay portfolio on the QuantStudio 5 system. In addition, Siemens Healthineers and Thermo Fisher announced an agreement to focus on incorporating the QuantStudio 5 system into Siemen’s Atellica MDX 160 Molecular System to provide flexibility and customization to its laboratory workflow.
Price: $60.67 USD; Market Cap: $19.32B
Agilent Technologies Introduces Real-Time PCR System for Clinical Diagnostics in Europe
AriaDx Provides Modular Solution for Diagnostic Labs and Assay Developers
July 25, 2017 (source: Aglient Newsroom)
Agilent Technologies Inc. (NYSE: A) today expanded its portfolio of instruments for molecular diagnostics with the introduction of the AriaDx Real-Time PCR System. AriaDx is the only modular real-time PCR instrument on the market intended for in vitro diagnostic use.
Real-time polymerase chain reaction (PCR) is routinely used in laboratories to help identify pathogens, genotype infectious agents, and for cancer diagnostics.
Based on a history of providing precision qPCR technology (acquired when Agilent purchased Stratagene in 2007), the new AriaDx Real-Time PCR System has been designed and manufactured to ISO13485 standards and is CE marked for use in in vitro diagnostics. Whereas the Stratagene qPCR products portfolio primarily catered to customers in basic research, the launch of AriaDx now extends the portfolio from its use in research to diagnostics.
“We are excited to provide a new generation of flexible qPCR diagnostics instrumentation for our partners creating molecular diagnostic assays,” said Jeff Heimburger, head of Genomics marketing at Agilent. “The unique and modular design of the AriaDx Real-Time PCR system caters to current and future needs of a clinical laboratory.”
Price: $223.80 USD; Market Cap: $6.71B
Bio-Rad Launches CFX Maestro™ Software for Real-Time PCR Data Analysis
June 8, 2017 (Source: Bio-Rad)
Hercules, CA — Bio-Rad Laboratories, Inc. (NYSE: BIO and BIOb) today announces the launch of CFX Maestro Software for CFX Real-Time Instruments, a complete workflow solution for real-time PCR data collection and analysis. CFX Maestro is the only real-time PCR instrument software that integrates statistical analysis, data visualization, and publication-ready graphics production in one platform. And, like its predecessors, it enables researchers to set up and run qPCR experiments with ease.
The intuitiveness of CFX Maestro starts from the beginning with assay design, where researchers can easily set up their plate and run conditions or use a predesigned PrimePCR™ plate and run files that automatically set up plate and run conditions. While other systems may require scientists to set up their plates before performing a run, CFX Maestro permits them to do so before, during, or even after a run, to save time.
Bio-Rad Introduces First Droplet Digital™ PCR–Based Assays to Quickly Quantify CRISPR Efficiency
June 21, 2107 (Source: Bio-Rad)
HERCULES, Calif.— Bio-Rad Laboratories, Inc. (NYSE: BIO and BIOb), today announced the launch of ddPCR™ Genome Edit Detection Assays, the first tests to characterize edits generated by CRISPR-Cas9 or other genome editing tools using Bio-Rad’s Droplet Digital PCR (ddPCR) technology. Users can specify their sequences and order assays through Bio-Rad’s Digital Assay Site.
Successful genome editing is a rare outcome that depends substantially on experimental conditions including type of cells used, transfection method, target sequence, and many other factors. Editing stem cell genomes, for example, typically succeeds in less than 5% of cells.
Bio-Rad’s ddPCR technology is well suited for the task of genome editing, empowering scientists to precisely evaluate the efficiency of their experiment in less time and at lower cost than with any other method. By partitioning samples into thousands of droplets, ddPCR technology increases the signal-to-noise ratio, which allows users to quantify extremely rare edits — even frequencies of 0.5% and from as little as 5 ng of genomic DNA — and still obtain the results within one day.
As we assess where the large market players are focused, it would be not be far fetched to think that as with market growth and innovation, there will be a need for the innovation in automated devices and the need for the production of customized medicines, which should further propel growth of the core market and ancillary markets.
Mathematics is in Co-Diagnostics’ DNA
Because of the growth of genetic testing and the market size and growth opportunities, we started looking for target investment opportunities in the genetic diagnostics sector with an emphasis towards PCR.
Our research uncovered a Nasdaq listed company in the PCR sector that is leveraging mathematics to help it gain an edge in the market place – the company is Co-Diagnostics, Inc. (Nasdaq: CODX $4.89).
Founded in 2013, and with headquarters in Salt Lake City, Co-Diagnostics, Inc. is a molecular diagnostics company that has broken down the complexities of DNA test design to create its own DNA test that can rapidly screen millions of possible options to pinpoint the optimum design.
With extensive experience in engineering new diagnostics for Sandia National Laboratories, US Army Medical Research Institute of Infectious Diseases, Department of Homeland Security, National Bio-defense Analysis and Countermeasures Center, the California Dept. of Public Health and numerous other agencies, the company’s Founder and Chief Science Offer, Dr. Brent Satterfield, has led the charge with employing complex mathematics to develop a molecular diagnostics platform.
Co-Diagnostics has a unique approach to molecular diagnostics that uses a form of mathematics called Cooperative Theory to develop predictive mathematical algorithms to help determine where in the genome to target; create multiple cooperative primer designs; and compare effectiveness of different CoPrimer sets.
What this means is that the Company has developed technologies that identify where to target in the genome. As a result, the process to create multiple cooperative primer designs can be done quickly…creating BILLIONS of copies in just 30 to 60 minutes!
This new innovation can replace older technologies such as Taqman and Molecular Beacons. Benefits of this include:
Ability to Massively Multiplex with Co-Primers versus Simplex Tests with Taqman (Limited to 4)
Eliminating Primer Dimers in the Process for Cleaner Results
No Need For Optimization as Various Combinations of Genetic Targets are Analyzed
Higher Specificity than Regular Primer sets because of Shorter Primer and Capture Sequences (Only Bind to Intended Target)
Dr. Satterfield has not only used mathematical algorithms to push on the company’s innovation but is also taking the added measure of applying for and securing patents as part of it’s strategy. Here is summary of awarded and patent pending applications:
US Patent No. 9,410,189 B2 - “Methods of Preventing Non-Specific Reactions of Nucleotide Sequences”
US Patent No. 8,815,514 B2 – “Detection Primers for Nucleic Acid Extension or Amplification Reactions”
US Patent No. 8,672,569 B2 – “Primers for Nucleic Acid Extension or Amplification Reactions”
US Patent Application 2014/140,038182 – “Cooperative Primers, Probes and Applications thereof”
US Patent Application 13/223,787 – “Rapid Oligo Probes”
So what does mean and how does this disrupt the market?
The Company’s Co-Dx™ development test platform shortens the development cycle for the creation of new tests utilizing Co-Dx Design™
software to weeks instead of months or years, rapidly screening millions of possible designs to find the optimal design for a specific disorder or disease. Co-Dx™ represents a dramatic new approach to molecular diagnostics, producing tests that are far less expensive to develop and administer.
In lieu of costly trial-and-error lab testing, Co-Dx™ designers let computers do the work, significantly shortening test development cycles. Co-Dx™ specialized primer designs can recognize their targets much faster, potentially leading to abbreviated cycling times on existing PCR detection equipment. And Co-Dx’s™ efficiencies are further recognized during PCR multiplexing (multiple tests run simultaneously).
And here’s the game changer…Co-Dx™ tests are being performed by the Company to create a new generation of highly mobile, low-cost PCR test equipment, as shown below:
Working in tandem, Co-Dx’s™ state-of-the-art tests + mobile devices will make DNA-based diagnostics both affordable and more broadly available, breaking down historical cost barriers to worldwide markets for much-needed, accurate tests.
Since PCR testing is broadly considered to be the “gold standard” in diagnostics, but is currently expensive, especially in developing countries that also have the greatest need for accurate diagnostics, Co-Diagnostics is smashing through this barrier with their technology and medical testing devices.
Launching into the Market
The Company’s product roadmap consists developing and manufacturing and selling reagents used for diagnostics test.
It will supply the reagents in the form of a Master Mix that contains the primers and probes necessary to identify the target genetic material (or the virus or bacteria in question). These tests undergo several regimented and documented design, verification, and validations procedures to ensure product performance and conformity with the needs expressed by the target markets.
According to the Company’s S-1, their initial sales plans include the design, development, validation and sales of six tests: Zika, TB, Hep B, Hep C, HIV, and Dengue.
Watch this short video to learn Co-Diagnostic’s technology is being utilized to diagnose patients suffering from the Zika virus:
It will go to market with the Zika tests mainly in the Caribbean and Latin America by expanding on the labs and hospitals already contacted and to which we have made demonstration visits. These hospitals have also indicated a desire to also have access to the others tests described above.
Other tests to follow quickly including Malaria, Drug-Resistant Tuberculosis, certain STIs, and tests that are closely related to the Zika virus (West Nile, yellow fever, Japanese encephalitis, and chikungunya).
The initial tests that will be available for sale and distribution will be targeted mainly to hospitals and testing labs. Co-Diagnostics will also license the use of its technology to large players in the biotechnology and diagnostics industries, by way of designing bespoke diagnostic assays for these entities and licensing the use of the resulting products.
A large chain lab has shown interest in the full panel of the tests set forth above and those tests will be made available to them immediately upon completion of the validation process. Upon successful validation, the Company expects the tests to be purchased and used as LDTs by the lab, meaning we will be able to commence sales prior to approval by a regulatory body.
Additionally, Co-Diagnostics will also be working with 3rd party manufacturers to integrate its technologies with their diagnostic equipment as self-contained lab systems.
The Company is currently working with the manufacturer of a thermocycler (PCR device) that is ideally suited for its tests, and is additionally considerably smaller and requires less calibration than traditional thermocyclers. The goal is to provide an extremely affordable device with its tests that will target laboratories who have a high demand for PCR diagnostics but have not previously had access to them. This will open up markets that had until now been either overlooked or just inaccessible to competition who rely on NGO or philanthropic subsidies in order to access new markets.
Some highlights and milestones that the Company has achieved and is continuing to pursue include:
Powerful and patent protected intellectual property
ISO 13485 laboratory with manufacturing
Large menu of tests that will be rolling out
FDA export licenses and near-term CE marking
Marketing initiatives underway in Caribbean, India, US
Installation of new lab customers underway
With the widespread distribution of the Company’s technology and tests, people all over the world will have access to the best diagnostic tools, and diseases will be more easily and more accurately diagnosed. The Company’s technology platform will also be used to make better diagnostics domestically, and the Company envisions licensing of large players already in the diagnostics space to create improved diagnostic tools. Co-Diagnostics, Inc. (Nasdaq: CODX) is poised to become a true player in their market, thus we are the Money Street have a long-term bullish view of this Company, and especially at the current valuation.
Risks that Need to be Factored In
As astute investors we also need to take a look at the risk factors the Company faces as it transitions into its go-to-market phase.
Because it is only starting to come to market, the company has no substantial revenues to date. Thus, the company will continue to consume cash, and on-going financing is required. Their IPO was positive for their balance sheet and not overly dilutive to their shareholders, so while a factor to consider, we do not find it overly troublesome.
Since the company is developing genetic tests, it will continue to face regulatory review. Its ability to develop, administer and navigate the clinical trial process to gain regulatory approvals will be key to the company’s longevity.
Co-Diagnostics, Inc. (Nasdaq: CODX) is working with a supply chain to help it manufacture and scale the production of its core products. Thus, it will have business exposure of working with, and managing 3rd party vendors and suppliers.
Like most Med Tech-innovators, the company must also work hard to attract and retain talent. As it is in a very specified field of expertise, we suspect that there is competition to recruit and maintain key personnel so we will be keeping a keen eye on how they are rewarding top talent as they mature.
Unknown global market conditions that could adversely affect the molecular diagnostics industry are also risks. Because the industry is still relatively new, any global slowdown would likely have an enhanced affect on the industry as opposed to a more mature market. This risk factor holds true for almost all emerging Med Tech companies, so we discount this concept in our analysis but do want to point it out.
Of course, like all companies, there are other risks associated with their business but we like our risk reward equation with Co-Diagnostics, Inc. (Nasdaq: CODX) and are excited about a nice return on our participation.
Investors Need To Do The Math
We believe that with a growing global population of over 7 billion people coupled with living longer, we believe that medical science is one of the sectors that will continue to attract talented entrepreneurs.
The molecular diagnostics market is the fastest growing portion of the USD 33 billion US in-vitro diagnostics market. Given the advantages of molecular (PCR) tests over other forms of diagnostic testing, which include higher sensitivities, the ability to perform multiplex tests and the ability to test for drug resistance or individual genes, this remains the fastest growing segment of the market and is estimated to grow more than 10% per year going forward.
Couple that with the Company’s experienced founder and focused management team, we believe that Co-Diagnostics, Inc. (Nasdaq: CODX) checks all of those boxes and has the makings for a potential home-run.
We can envision that the Company will successfully deploy a full menu of tests that will be distributed throughout the world. At its current costing and for the currently projected sales price, the Company will be very profitable, and would be an acquisition target by one of several global pharmas/biotech companies.
The window of opportunity to get involved with Co-Diagnostics is closing so you should act now. As once the company starts to execute on its growth strategy, you will have wished you got in at today’s prices.
We hope you have found our research helpful today to uncover new opportunities for the build out of your portfolio alongside us.
- The Money Street Health Care Trends Team
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