[00:00:00] Pierre Daillie: If you’re at all interested in what’s going on in the genomics and biotech sector, stay tuned. The innovation, disruption and breakthroughs taking place at companies in this space are destined to be among the most exciting for investors in the period ahead. Joining me to talk about it are Lisa Langley CEO at Emerge Canada Inc., and Ali Urman, analyst at ARK Investments, subadvisor to Emerge ARK ETFs, sponsor of the Emerge ARK Genomics and biotech ETF, Ticker: EAGB. This is the Insight is Capital Podcast.
[00:00:37] Ali Urman: The views and opinions expressed in this podcast are those of the individual guests and do not necessarily reflect the official policy or position of advisoranalysts.com or of our guests. This broadcast is meant to be for informational purposes only. Nothing discussed in this broadcast is intended to be considered as advice.
[00:00:50] Pierre Daillie: Lisa, Ali welcome. It’s great to have you.
Thank so much.
Thank you, Beer.
Lisa, the Genomics & Biotech ETF Ticker: EAGB is specifically one of disruptive innovation themed ETFs. You are most fond of talking about among the big six themed Emerge ARK ETFs your firm sponsors. Tell us a little bit about why you think this is such an extraordinary theme to invest in?
[00:01:18] Lisa Langley: The primary reason is that there’s an tremendous sense of urgency for us to improve the quality of healthcare and to prevent and stop thousands of diseases. And the breakthroughs that are happening every day are real. Sometimes when we’re speaking to advisors, we ask them, who here believes or who in our audience believe that they actually will go to a physical that requires your genome to be sequenced? And in their lifetime, they’ll go back again a year or two later, and they’ll have that done again. And, something, perhaps an abnormality will be detected that will save their life. And I think in this theme in particular, why all the themes are very important to improving our world condition for communications and, transportation, et cetera, this one actually is very personal because medicine has to advance and we need to cure cancer yesterday.
And we need to save people that, are very saveable. And I think we’re gonna look back, certainly Ali, and all the things that we’ve learned from h- from her, tremendous insight. We’re gonna look back 10 years from now, and we are going to say, oh my gosh, unfortunately, that is so curable now, but it wasn’t then. Oh, unfortunately this person suffered with that, but now that can just be, and an outpatient treatment be cured, there’s just so many things that we’re right on the cusp of. And, that’s one of the things that we just think is so exciting, because this really is gonna make the world a better place and personally, it can help us live longer, more healthy lives.
[00:03:03] Ali Urman: Here, maybe just to, to piggy back on, on what Lisa’s saying, which is all really well spoken. I think another interesting thing is that the pandemic has really shined a light on exactly what it means, right? Before this, there was interest in healthcare, but I think the interest really exacerbated when we saw that we could develop a vaccine in record time. So there’s really no better example of exactly what Lisa’s talking about. That healthcare has actionable, helpful things. There’s no other industry really that could provide the attention to detail and help to people that healthcare can provide. So just wanted to maybe highlight that as a, as example of when people are seeing really the power of what healthcare can do and how transformative.
[00:03:50] Pierre Daillie: I I agree. I was blown away just in terms of what you’re saying, Ali, and the pandemi- in the context of the pandemic, I was surprised to find out that the COVID genome was sequenced in the third week of March, which is right when, things were really exploding on the COVID front.
[00:04:15] Ali Urman: And just even think about the timeline that it took for the vaccine, right? Prior to this, I think the quickest vaccine ever was four years, maybe it was the mum’s vaccine. And so just think about the timeline that we expedited-
… And it really goes to all different sectors within the field, right? Government was involved, regulatory was involved, scientists were involved, public health officials were involved, the public was involved in terms of volunteering themselves to test the vaccine. And so I think this was just such a great community effort where we saw all the sectors come together. And there are lots of opinions on what could have been done better or what should have been done better. But of course at the end result, we got a vaccine in record time, and I think that just speaks to the accelerated piece of innovation that we’re seeing. And I think hopefully it will also show that the fast form for healthcare is going to be using more of an upstream approach as opposed to a downstream approach. Trying to catch things early and do preventative work as opposed to catching them and then providing treatment. And I think as you’re talking about it, next generation sequencing is a really big part of, the technology that’s facilitated our abilities to do this.
[00:05:30] Pierre Daillie: Ali, please tell us about the areas of biotech and genomics the sub sectors that you cover as an analyst that ARK.
[00:05:38] Ali Urman: Sure. So I joined ARK about two-ish years ago now. Really interesting timing because that was around February, [laughs] just the time you’re mentioning. I joined just before the pandemic, which is obviously an interesting time to start a new position. And prior to that I had a totally different career path. My background was in epidemiology and biostatistics. I was involved in cancer research, also did consulting for AI and healthcare at IBM Watson Health. I did some consulting myself. I became really interested in innovation and patenting. I was on a patent view board. I also have a few patents myself. And so this convergence of AI, patenting, innovation, healthcare was really interesting to me. I came to ARK from actually looking into getting financing for a startup that I was working on.
And I fell in love with ARK and mission, and how the analysts all work together, how we think about different technologies coming together to create even better technologies and lowering cost to clients. I think there’s a lot of really great opportunities. And as Lisa was mentioning too, the idea of it being in healthcare, which just has such a vast impact on the world I just feel really lucky to work in this. But a lot of what I cover is what you just mentioned and what we’ll get into now, which is gene editing, gene therapy, immunotherapies, cell therapies. I’m therapeutics analyst at ARK, so anything involved with the treatment will basically be covered by me. We have another analyst at ARK his name is Simon Burnett. He’s fantastic and he covers diagnostics and tools. And recently we hired another analyst, Pierce, who will help Simon and I in our respective coverage areas, and also covers bio as well.
[00:07:27] Pierre Daillie: thing I I think is really notable about ARK and I’d like to point it out is the fact that, you and the other analysts at the firm are actually from your respective backgrounds, you all started in the fields as opposed to being financial people. Starting out as analysts at banks or, broker dealers. You actually all come from the respective backgrounds. Like you actually have a clinical biology background. You’re all from the respective professions and segment sectors of the market that you cover. You actually have the experiential background you, you know what’s going on.
[00:08:08] Ali Urman: when talking to Kathy about this, she would say that it’s much easier to teach someone finances than it is to teach them genomics. [laughs] she likes to have analyst-
[00:08:20] Ali Urman: … and with deep domain expertise, and so that they could understand those really dense and maybe difficult to interpret topics. And that, of course most people who, understand genomics, or AI, or others you tend to be pretty good with numbers. And I would say that therapeutic specifically is pretty interesting. There are significant amount of our companies that we believe have high potential for growth but also are pre-revenue. At that point, the most important thing to understand is the science and to make sure that the science the leadership team, the, ability to execute, those are all put in place, and then the financials will come.
And so I think that creates a really special research ecosystem for ARK, and that’s why near a very transparent, we put out all of our research. We love feedback. I try to post, thoughts on Twitter, or medium or through blogs, and we love hearing from people because we believe that through a community we’re stronger. And so we also have a program where we have eight developers who are, leaders in their respective areas. We bring them in too, and we have a weekly brainstorm where every Friday we present, things we’re thinking about, things we’re researching and we welcome feedback from industry experts, because I think the most important thing is to stay humble and to appreciate feedback, and to learn from other people.
And so I think we all do that. We all really closely throughout the analyst team, because of all these important convergences that happen. And I definitely do green, Beer, that, that’s certainly is one of the really interesting things about ARK, and probably one of one of the reasons that we have such a differentiated approach.
[00:10:14] Pierre Daillie: Let’s get into the nuts and bolt of genomics, gene editing, and DNA sequencing. What is CRISPR gene editing, and next generation DNA sequencing, and what are some of the easier ways or analogies to describe what that means?
[00:10:31] Ali Urman: Yeah. Probably back to the other question, which [laughing] we’ve been doting around.
But CRISPR gene editing, you mentioned, and I think, it, it could never be a podcast with me without delving into CRISPR, because it’s just one of the most fascinating things that I have the pleasure to learn about. CRISPR is a precision tool. It can edit DNA. What it does is it can delete, it can insert, or it can change a DNA sequence. And, going back to what we were talking about earlier and why this is so important is that it could potentially create function of cures. We also talked about, a little bit earlier, next generation sequencing, which is another technology that we believe at ARK has tremendous potential, and we’ve already seen a significant amount of that potential. And so NGS, we can say per short, [laughs] it’s a really special tool as well, and it can essentially show sequences for our DNA or our RNA, and, even more recently proteins.
And as we all know, the central dogma is DNA goes to RNA, which goes to protein. And so this is used to look for genetic variation. And so we talked about in the beginning, like, how does this really impact health? But we can now see, in our genes, if there’s something that is a variant or something that is a mutation, and then if it is a disease causing mutation, there may be something we can do about it. And it may be through transfer gene editing. It may be through gene therapy and or another type of modality.
[00:12:03] Pierre Daillie: How exactly does that happen? For example, in the case of chronic diseases or cancer, how does the gene editing technology actually manifest?
[00:12:14] Ali Urman: Yeah. Let’s put it into practical terms. I think you mentioned this earlier in terms of a metaphor. What CRISPR does essentially, is you have a CRISPR-Cas9 enzyme, there are other enzymes, but for maybe ease of understanding, let’s just go with that one. It’s the most common. It’s also the one that Jennifer Doudna and Emmanuel Charpentier won the Nobel Prize for. Basically what that does is it’s attached to a guide RNA. And the guide RNA is going to lead that enzyme to a particular spot in the DNA-
… and then it’s going to be able to cut it. When it gets there, it’s going to cut both strands of the DNA. And so when we talk about metaphors, a lot of times we think of that as molecular scissors. Whoever do you see it in the lab, it looks like a clear substance [inaudible 00:13:06] disappoint. Yeah. And then there are new modalities CRISPR too, right? We’re increasing its functionality and we’re able to see new and better ways, not necessarily better, but maybe better for different indications. Another type of CRISPR could be base editing. And so with base editing, one of the metaphors that are used often is a pencil and eraser.
We know that in our DNA, we have base pairs. And so if there’s a mismatch in a base pair or a point mutation, you may be able to just take that eraser, erase it and change it to be the correct pair. And how that works is in a very similar fashion. We’d take a CRISPR, doesn’t necessarily have to be a CRISPR enzyme, but you can take a CRISPR enzyme. You attach it to a guide RNA, and this time we have a deaminase. And the deaminase basically facilitates that chemical reaction. But in this case, we cause a nick to one strand of the DNA, and we’re not cutting both strands of the DNA. And then a newer form of-
… editing that’s come out recently as well is prime editing. Essentially the same thing, the metaphor there would be like the copy piece mechanism on your computer that we all know way too well and they’re using way too much. Again it’s pretty similar. You’d have the same enzyme we call this pegRNA or a prime editing guide RNA, but essentially does the same. And then you’d have a sequence that’s there. And the reverse transcriptase is there instead of the deaminase. And essentially it can take an RNA piece and create it into a DNA. And so that’s one that, that’s really exciting and we’re gonna see new developments. Stat News actually did an article on the best and worst CRISPR analogies.
So that made me think that when you were talking about analogies. And they included ones like Swiss army knife Photoshop, or like a bomb removal squad. We also created a conversation on Twitter where we were trying to come up with different sports analogies, and, Beer, might have even been-
… when I talked to you last time that I was-
… trying to do like a football analogy and it just failed miserably ’cause I knew nothing about football. We did have one, I think this was David Nelles, who’s the CEO of co-founder of a new stealth biotech startup. We don’t know which one, but formerly Locanabio. And it was that the guide RNA is the quarterback telling all the linemen what to do. The linemen are-
… the CRISPR-Cas enzyme-
… following the orders of the guide RNA. And then a DNA nick is peeled, ooh and it double straighted break is reaching the end zone.
[laughs] I think we tried the hockey one, but ’cause maybe, you know-
[00:16:00] Pierre Daillie: much of this… So much of the work in this business is getting people on board, right? It’s so important to get people on board by helping them to understand, exactly what they’re investing in. Good storytelling to, to get people or to help people get on board. And, it’s very easy to get lost in the weeds when you’re talking around biotechnology, which are, very intricate and very complex. And so anyways, thank you very much for sharing that. I think that’s something that, that most people can relate to.
The the sports analogies always work. I think by now, everybody’s familiar with, MyHeritage DNA and, ancestry.com for sequencing, their family DNA and telling them where they’re from. And all of that was ultimately made possible by the advances that were happening in DNA sequencing. But let’s talk about next generation DNA sequencing a little bit. And maybe you can describe, why that area is so important.
[00:17:08] Ali Urman: Yeah. It’s just the idea of the being able to read your genes. And so knowing anything that’s actually going on within your body. And we’ve done a lot of work on looking at how, next generation sequencing can also then play into other technologies and convergences, right? Thinking about how NGS and artificial intelligence, which is something we’re talking about a lot, and then CRISPR, which we just talked about a lot, how the three of them together are really a powerful convergence. And we did a lot of work on this in our big idea at stack. I think this was back in 2020 where we showed how the three of these technologies, if, when they converge can do something really powerful. And this also goes into actually how we think about modeling therapeutics companies at ARK.
And so we think that these technologies will allow a reduction in time to market and also decrease failure rates. And so what that means is that drugs will get to market quicker and we won’t have drugs that won’t succeed go into the clinic. And obviously it’s not a foolproof method but it will significantly reduce both of those. And some examples of the ways this can actually be done. For example, if you think about AI, we were using AI when I was at Watson to find clinical trials. We were looking for centers that would have the best patients. And sometimes what happens is you pick centers and they never register any patients. And so what happens is you lose both a lot of time, because you have to do a site visit, you have to make sure the hospital looks equipped. You have to set up that hospital.
But then they don’t recruit any patients because they don’t have those particular patients at their hospital. And so obviously that can delay the trial. Using AI, we can actually find the patients that are going to be that most likely to respond. And we can also look for the hospitals that have those patients. We can also look for those patients by using NGS. We can find patients that we think are most likely to respond based on biomarkers or others, such type of information. And CHIMEs of CRISPR, gene editing, gene therapy, obviously they are, we’re thinking about real potential cures. And so the convergence of all these three make things really exciting. And we published a blog on this about this on our website, but basically-
… when we think about how we model therapeutics companies, we highlight how we could add 25% time to market, 25% failure rate reduction. And what we do and we also compare this to how the street thinks about modeling and we can probably do a whole other podcast just on how we model. But this adds significant value to pipelines. And for example if we think about a discovery asset the net present value would go from 34 million in a status quo evaluation, to 144 million per, for an ARK estimate. We just see tremendous value in the convergence in these technologies.
[00:20:25] Pierre Daillie: So the sum of the… The sum of the parts I think at the outset, it appears to be a lot less, but when you combine the, when you combine them through convergence they end up being much greater, is that
[00:20:46] Ali Urman: I think, own, a lot of these technologies are pretty powerful, but when you actually put them together, they can be even more powerful.
[00:20:54] Pierre Daillie: Now do you foresee in the future this collaboration becoming a very big part of the the market in terms of biotechnology?
[00:21:09] Ali Urman: Yeah, and I think that the more exciting thing is even just thinking about the pace of innovation. Like these are the technologies that are really impactful right now, but we may not even be able [laughs] to predict, new technologies that can come to the market that will be incredibly impactful within the next decade. So when we think about, just in terms of gene editing, when we think about zinc-finger nucleases as talens, and we think of CRISPR, we can see the pace where they came out with, the first paper to the first ex vivo application or creating the therapy outside of the body to the first in vivo application, creating the therapy within the body. The timeline has just vastly accelerated-
… but also the amount of diseases that we can actually attack using these modalities is also increasing. I think those technologies will continue to be important, and I think there are gonna be many more that we’re gonna see because they’re gonna go come onto the scene and their timelines will be vastly improved as well.
[00:22:17] Pierre Daillie: Yeah. One of the most exciting gene therapies in, in very recent history is the sickle cell anemia gene therapy, right? That’s been quite a revolutionary step forward for those who are suffering from sickle cell anemia in terms of changing the genetic makeup of blood.
[00:22:39] Ali Urman: Yeah. That particular therapy that you’re talking about, I think, is created by Vertex and by CRISPR Therapeutics it’s called CTX001. And what’s really exciting about it is that it’s inpatients. They’ve-
… treated about 70 patients. CRISPR’s treated about 100 patients throughout their whole pipeline. And that’s like starting to get real numbers. So it’s not in mice anymore. It’s not just in known human primates anymore. These are real patients that are really having their lives impacted. I know Victoria Gray, who I think was the first patient to ever have the therapy, has been on NPR and a few other channels talking about how this has really changed and affected her life. It’s just really interesting and great to see how these therapeutics are actually being in the clinic and an impact they’re having. For anyone who doesn’t know, also sickle cell and bet thalassemia they’re p- essentially diseases where a person is plagued with their hemoglobin taking a sickle shape. And sickle basically look like a half moon.
[00:23:48] Ali Urman: Best way to describe it. What it should look is like a little disc. If you’ve ever seen blood kind traveling through you, you’d see these little disc looking things for the red blood
[00:23:59] Pierre Daillie: cells.
It’s the odd shape the odd sickle shape of those you know-
… malformed cells that’s causing blockages. Or the misshapen ones.
[00:24:07] Ali Urman: And you get all kinds of issues with that. You can get [inaudible 00:24:11], hospitalizations.
You may need transfusions. And so it’s really pretty impressive to see that the patients who’ve taken this drug thus far, obviously the key comment on the future have not needed a hospitalizations, haven’t had the pain, have been able to have, go on with their everyday lives and the safety profile so far looks good as well. Jennifer Doudna once said to us in, in one of our meetings that she attended which was a live broadcast with Kathy, she said, "No news is good news," or agreed with Kathy when Kathy asked about no news-
… is good news. And I think that’s really relevant here. They’ve treated, about 70 patients just with the CRISPR Vertex trial to date and we’re not hearing any sort of news from it. Of course with any new modality, we have waited for further detailing, the FDA came out very recently with a bit of a draft guidance on how they’re gonna view gene therapies, gene editing therapies. And so that’s, that remains to be seen from a regulatory perspective, what happens. They did differentiate between a double strand break and no double strand break or nick. And so we’ll have to see how the FDA handles that regulation. But I do think that at least for now there’s a lot of excitement around the idea of potentially saying, "Hey, you thought you were gonna always suffer from this disease. We have something that we actually help you
[00:25:41] Pierre Daillie: now."
What happens to the malformed blood cells? Do they actually get transformed into healthy blood cells, or are they replaced by healthy blood cells ultimately?
[00:25:50] Ali Urman: This form is the traditional CRISPR form that they’re using. It’s going all the way back to when we were talking about metaphors. It’s using those molecular scissors. We have a CRISPR-Cas9 enzyme, it’s attached to a guide RNA, it gets to where it needs to go, and it cuts the DNA. And so that we call gene disruption. And why this is really a good way of doing it potentially for sickle cell and beta thalassemia is because what happens is, it disrupts the adult hemoglobin gene, and it turns on the fetal hemoglobin gene.
And right near the time of birth, your fetal hemoglobin is shut off and your adult hemoglobin turn on. But obviously the issue with these patients, the adult hemoglobin is malfunctioning. Once that shuts off, we have the healthy fetal hemoglobin turn on, and all goes back to normal. I think that’s a really easy way of understanding how gene disruption could be a really good way of treating these patients, because all we’re doing is shutting off a gene that isn’t working and we’re turning on this fetal hemoglobin, which works but wasn’t on.
[00:27:00] Pierre Daillie: more about the advent of personalized medicine as you see it. How do you define the word
[00:27:04] Ali Urman: personalized?
Yeah, I think personalized is just as it sounds, right? Personal. It’s a treatment plan, it’s a diagnosis, it’s a therapy that’s specifically designed for you. Whereas previously and there’s been tons of literature on this, even in clinical trials, it wasn’t a representative sample. There wasn’t enough minorities represented, but we would say that drug is good for everyone. Whereas, we’re still, we’re s- we’re still getting there with clinical triple representation. I think one of the important things is that we’re working on creating treatment plans and paradigms for particular are patients. And I think, maybe one sort of huge catalyst that has allowed us to do this was the human genome project. And so I think we, we’ve touched on this a little bit, but maybe just to give a little bit more background or context on what the human genome project was, is it was this really huge international effort where we wanted to understand and map all of the genes, which are included in the human genome.
And by doing this, then we were able to sequence those genes, as we’ve mentioned before, and see, which diseases people were potentially at risk for. And then we could actually create a treatment plan that would be specific towards that individual. Thinking about an example here, we could think about CAR T-cell therapy. I don’t know if you’re familiar with that pair, but that is a way in which we genetically modify T-cells, which are important for immune and immunity within the body. They’re part of the immune system. And these engineers cells actually can attack a specific protein. Maybe it’s on a cancer cell, maybe it’s a cancer cell. This could be a way of doing it instead of using chemotherapy. Where chemotherapy, you basically are injecting poison, which, so that affects killing all cells. Your healthy cells and your cancer cells.
And so this type of therapy would be specific in which you would target only the cancer cells. I think there are a lot of good ways that we’re gonna get to diagnosis and treatment faster. A lot of those are gonna be things like we mentioned before NGS or AI. This specifically is gonna be really for n- for attacking actual cancer cells as opposed to attacking droopy these cells and being able to personalize it by using your own cells. So I think that’s gonna be the main advantage. And the reason that we can, you get to the sickest group of patients that’s gonna be because we need to have a vein to vein time, it’s called, which is essentially when you take the blood out you grow those T-cells and then you put them back in.
That’s, from step A, when you take out, to step B, when you put it back in. That’s obviously no personification of the process. But that time is really important. And so if you’re really sick and you have limited time, you may not be able to wait, but if you could get donor cells, then, that’s right off the shelf. And so that could happen a lot quicker. And so that’s why it would expand that personal market potential, but also help a different group of patients that are really sick and need the treatment right away. Of course these pa- these cells sometimes need to be shipped depending where the manufacturing facility is, and so all of that time needs to be taken into account.
[00:30:36] Pierre Daillie: pharmaceutical business has earned a terrible reputation for developing profitable drugs that treat symptoms rather than cure disease. Companies in the gene editing space are disrupting big pharma. They are threatening to make a vast swath of existing and profitable drug therapies obsolete with cures and curative treatments. How close are we to the day where we’ll see cures for terminal or chronic
[00:31:06] Ali Urman: diseases?
Essentially, the FDA has now approved around 10 gene therapies. We have done some research on this to try forecast how many that could be within the next decade. And what we see is that and of course this, again, goes with our model where we adjust failure rate and time to market. But we think that there could be about 170 expected commercializations in the next decade per gene editing and gene therapies. And so-
… What that says is that, [laughs] yes, there could be a lot of disruption, but I think the other point there is that I think pharmaceutical companies have an appetite for this. We also did an analysis where we saw that, we looked at traditional therapies and then we looked at gene therapies, and we saw that if you look at it on a per life year basis, the gene therapies actually are cheaper. That’s something maybe the pharma companies wouldn’t like. But it is a significant upfront cost that the patient needs to pay. And, we’re gonna see what happens with Medicare, Medicaid and providers as well, and see what we’re gonna be able to figure out from that, and how much they’ll be able to get.
But I think the idea here is, when we talk about trials like the Vertex CRISPR trial that have already treated 70 patients, these therapies are going to come to patients soon. And I think that the pharmaceutical industry is going to need to get on board. And so many of them have that we, of course, the example of Novartis with Zolgensma the spinal muscular atrophy drug which is, obviously a huge upfront cost of about 2 million but really important for patients. And we’re seeing that can have a significant effect on, on patients and these young babies. I think one of the things that, that’s important to think about is that when we looked at R&D spend that’s gonna be devoted to some of these innovative therapies like gene editing gene therapy.
We saw that amount of R&D spend could grow from 3% to 17%. I think this was by 2026. And so it just shows that’s what we’re moving towards. We are seeing it from trials, we’re seeing it from publications, we’re seeing it from expected RD dollars. And so I think that the pharmaceutical companies have realized that. I think this was on Pfizer’s last earnings call. They had a slide where they just talked about their RNA or mRNA strategy going forward. And they talked about their interest in base editing. And of course, their deals that they made within that field. And so I, I think that the pharmaceutical companies are getting on board. And the cost is always a really difficult conversation, but I think that there’ll be ways in which the costs will all work out for all parties involved. And it’s a really exciting time to see all these innovative therapies that are gonna come to market. And I think it’s gonna be within the next decade. It’s exciting.
[00:34:16] Pierre Daillie: I see what you’re saying in terms of this collaboration in between all parties to, to make the cost of these therapies in line with, affordability in terms of people actually being able to benefit from them, as opposed to being out of reach, it is really in the interest of all parties to chip in or subsidize these projects, so that they do become mainstream as opposed to having a $2 million treatment be forever out of
[00:34:46] Ali Urman: reach.
That’s one way to potentially alleviate some of that cost issue. But it’s definitely not something that, is being taken for granted. And I think there’s a lot of discussion amongst, leadership in terms of how to deal with that. But, when you’re able to provide functional cures for patients, I think you really can’t focus on just the cost.
Can I ask Ali
[00:35:11] Lisa Langley: question? Yesterday in our genomics webinar, you mentioned a website, clinicaltrials.gov.
And so if anybody listened to that webinar, went to that website would, do those clinical trials… They, they have different prices? Do people apply to get accepted? Is this something that people can say, okay, I’ve been told I have some rare, disorder perhaps if I go there, I’ll be able to find something that might save my life. But is it gonna cost $2 million dollars? I just wondered is that type of information also available on that website? I haven’t looked, but I just wondered.
[00:35:52] Ali Urman: Yeah. Clinicaltrials.gov is a website that houses all cli- clinical trials. And so it’s a way, if you’re a patient, I use it all the time too, but if you’re a patient it’s really helpful and it’s a centralized place. Sometimes there, there are some words or a bit of medical jargon in some of the titles, so that can be a little bit difficult. But it should be accessible to the average reader. In terms of Lisa’s question on whether it involves pricing. Typically you do not pay to be on a clinical trial. You may need to pay for some tests but typically that’s paid for by the clinical trial. And sometimes you even get small stipends or money to take cabs to the hospital depending on the clinical trial.
So that wouldn’t be when the cost would happen. The cost would happen at commercialization. Once the therapy is FDA approved, then you would have to pay for the therapy, or it would be covered by insurance, or portion of it would be covered by insurance.
[00:36:58] Lisa Langley: And that isn’t any different between Canada and the US, would that be correct? That’s kind of-
[00:37:03] Pierre Daillie: It’s it’s reminiscent. The d- the discussion we’re having right now I think these are questions people would ask, but it’s reminiscent of, to me, it’s reminiscent of the story around, surrounding, autonomous autonomous vehicles and the debate about, it having a significant impact on insurance premiums. When you consider that-
… Ultimately the goal of autonomous driving is safer roads, less accidents.
That will significantly reduce-
… the amount of insurance that we all have to pay for driving. So I see the similar the, the same kind of dynamics ultimately coming to biotechnology and treatments and making cures accessible.
[00:37:52] Lisa Langley: I just wanna mention some of the challenges around advisors investing, and opening of this opportunity to invest in a genomics of biotech strategy to their clients. And it really is everything we’re talking to Ali about today. Because this is a sophisticated conversation.
[00:38:14] Lisa Langley: This conversation takes time. Advisors, are very busy servicing many households and clients and trying to get a lot done at every appointment explaining, any of these underlying technologies really takes, some effort. They need to paint a bigger picture. But in order to even be willing to go out on a limb to talk about something that, I’m not a genomist, right? So what do I talk about when I talk about this? I talk about the strength of someone such as Ali. And so we’re trying to give advisors the understanding that true, sophisticated expertise, it’s not a financial exercise. It is an exercise by a genomist who specializes in therapeutics and another biomolecular engineer from Hopkins who specializes in diagnostics to put together this bigger picture so that clients believe.
And to the point you just made about electric vehicles, I can talk to somebody about investing in strategies that include electric vehicles, that include drones, because they see Teslas on the road. They see commercials about needle like vehicles being made. They see drones from the Toronto Police flying around-
… in downtown. Okay. That, okay, that’s real. I see that. But some of this, it’s funny. At the time that the pandemic was happening, and this is the first point we made, Ali, about, okay, the only way we got the vaccines was this miracle, right? The miracle of sequencing, the miracle of plastic, the miracle of being able to get through all of that medical data time to say, okay these vaccines and these boosters, these are safe for people to take and safe for children et cetera. But there isn’t a day to day belief that some of these things really are going to happen in enough time, and they don’t have enough information about them in a way that they can digest it.
And so it’s a underappreciated investment area, because it requires a real interest and a passion on a part of the advisor and investor to, invest in a strategy that has stocks that are, just, real things. The top five holdings in the genomic strategy have average year over year growth revenue growth of over 230%. That’s not your average stock, right? And in these risk off times, they’ve been punished brutally, because they may not have a bottom line. They have outrageous revenue growth. And so it’s a more sophisticated story that takes a longer period of time. And as Ali said, I know I’m looking at the list of holdings are here. Some of them don’t ha- are pre revenue.
Some of them don’t have revenue, right? If you look at the average across the entire 48 holdings, that’s 144%. Okay. Some of them don’t have revenue yet. Some of them don’t have a bottom line. It’s a true belief in the expertise of ARK to prioritize those holdings to understand who might hit it first, right? Who might have a better outcome, how’s someone’s trial going? Because a question that was asked yesterday in a webinar that we hosted is how does, Ali have access to the information from these clinical trials? How does she know that some things working versus something isn’t working? And that you might wanna speak about that, Ali, ’cause that was a question that came out yesterday in our webinar. Why should we try to understand how are you doing it? [laughs] are we making these talk? Like
[00:42:11] Ali Urman: the…
Sure, I, I think it takes a l- a long time [laugh] to know where to go, but the data is mostly available. I get alerts, I put on alerts for all new clinical trials, you can also put alerts on if there are changes to clinical trials. So that website is a good resource, clinicaltrials.gov. Company websites will put up their data and so you can see there, they put up their new presentations. One of the most important ways though is attending scientific meetings or academic conferences. And so there they’ll present their newest research. And another way is obviously through academic journals. And so looking at the academic journals and getting the actual raw data can be really important. And you can look in all the supplemental information from different journals and different journal articles to actually seeing some of the specific sequences. So that’s typically what I do.
[00:43:13] Lisa Langley: point you earlier though here, right? That, someone who may be the most, have the sharpest pencil, in town and an MBA from, wherever doesn’t, can’t read an academic journal on the ou- on the findings that are coming from a clinical trial, or understand the language even that’s being described about, how sick, or how healthy or what was the condition of the particular patient. I looked at one of these si- [inaudible 00:43:45]
[00:43:45] Lisa Langley: It’s not… I couldn’t digest it, right? Because it’s not my… I didn’t have the knowledge to get through it, right? So I think it’s something that, again, speaks to these strategies that are readily available. If they’re not backed by true expertise in that particular subject matter, especially in, in, in the broad area of innovation, and I can say this, the case about it. All across out the board the area of expertise is really so deep that the conversations, in many cases, they get wonky. So it’s a very special, unique opportunity.
The big idea is research study that our ARK Invest released not that long ago, over 200 pages of very fascinating information. But to be quite honest, there are things in there that are at the wonk level that are hard to understand. Now we have people asking for it all the time, and we are so excited to share it and we know are very have high level of confidence but it’s not, your average read. Your webinar yesterday, we received great feedback.
Ali created slides that were really very simple to understand, and she took people on a learning journey.
[00:45:09] Lisa Langley: And she didn’t lose them in the weeds. And so it happens to be one of, one of her best. She’s always good and that was one, one of her best. And a picture of her working in an actual lab-
[00:45:21] Lisa Langley: … Which was really-
Again, the point, here that you made earlier. And we just feel really fortunate, to partner with ARK Invest on these, ETFs experts like Ali, in particular, because you’re very thoughtful and you care about the audience understanding. And so that was very educational. I really appreciate.
Yeah, of course.
[00:45:46] Pierre Daillie: Speaking of which, markets have been really unkind this past year to stocks in the disruptive space of genomics. What do you think is behind this, and what do you think lies ahead for the valuations of these companies?
[00:46:01] Lisa Langley: think a good analogy on where you’re going on this is that, if you took a ruler and you said, okay, here are 12 inches and let’s say at a year. Inch, inches is a year. Okay. The analysts on Wall Street can’t get the next 90 days correct. Okay. 90 days. All right. Where’s that on by ruler? That is like way down here. Okay. But Ali was just talking about the progress we’re gonna make over the next-
… decade. That’s out here. Okay. That’s 10 years. Okay. And all of… Yeah. All the forecasts.
No, go ahead.
I wanna bring
[00:46:41] Lisa Langley: That’s really the street doesn’t have the skills-
Yeah. Sorry, go ahead. Go ahead.
… and they only care about what’s gonna happen in the next quarter. And the and that, and
[00:46:50] Ali Urman: what we’re talking about, it’s not even
[00:46:53] Lisa Langley: on the ruler.
[00:46:54] Pierre Daillie: Ali, in your research, you forecast that we could see the market cap of stocks in this space grow at about a 50% for, 54%, a compound rate of growth from today’s $131 billion to $1.1 trillion, or just slightly over 8X from January’s levels between now and 2026.
[00:47:16] Ali Urman: Yeah. I think there’s a few things that go into it. One thing, first of all, to maybe highlight is that even though some of the companies are pre-revenue, they do get some form of revenue stream, not all of the companies, but a lot of them are partnered with large cap pharma. And so those, when things hit the milestones that they need to they might get, those payments attached with those milestones. Just to highlight that some of them, it’s not like they’re at a, [laughs] a negative. They do get SEP form of revenue, some of the companies. I think you bring up a good point in one of the things that we highlighted our big idea at STACK 2022, as you mentioned, was this, $1.1 trillion number, which is obviously a really big number. And, how we get there is first of all, we think about the potential commercializations.
As I mentioned, with the way we model, we think about, 170 potential commercializations within the next decade. We also think about the increased spend on R&D. Three to 17% by 2026, which will just equal to more commercializations theoretically, as long as everything’s effective and safe. And then if you look at the academic journals, and do a PubMed search, so PubMed is a database where you can look at all the academic journals. It’s one of the ones I use a lot. There are many others as well. You can see that the amount of publications on CRISPR, gene editing, gene therapies, they’re just continuing to rise.
And so we know that’s where things are headed. And so when you look at all of the sort of functions in terms of, thinking about where people are spending their money, what direction people are going we just see this as a [inaudible 00:48:58] opportunity in terms of market cap, in terms of companies entering into the field as well. Many new companies have entered this just in this year. Yeah, we think this could be a very large opportunity and we’re excited to be at the forefront of this innovation.
[00:49:14] Pierre Daillie: I think we’ve we’ve covered a lot of ground in this conversation. I I wanna just add that, some of these companies have the potential to be the Teslas of tomorrow or, the Pfizers of tomorrow, if you wanna put it in, in the sense of, going from being a growth company to being potentially a giant. But maybe it would help to give also some perspective in terms of what the current range of market capitalizations of these companies are and to what extent they could grow.
[00:49:56] Ali Urman: I can’t speak to specific market gaps. But what I can say is that ARK has particular [inaudible 00:50:04] that we will buy. And so all of our companies are, at least, that threshold and above. And we look and compare obviously different categories to ensure that the companies within our portfolio are the companies that are most likely to grow at an exponential rate. And we also, at the same time, are obviously always looking for companies that at the same time, that they have this potentially huge growth opportunity. They also have a cost to client opportunity. And so when those two vary each other is when you really can see some magic.
[00:50:37] Lisa Langley: Very few stocks in the ETF, probably two of the holdings in the ETF are below a $500 million market cap. That’s about two of that. The rest are above that. ARK is very careful about, having companies that do have at least a representative size, for valuation and forecasting, because that gives, their analysis
[00:51:00] Ali Urman: makes it more robust.
Some of these technologies are really new and fresh, and sometimes misunderstood. I don’t like to give a specific market cap range will be in the sense that, it’s tough to get some of the smaller liquid companies into the fund, but certainly it becomes really interesting and exciting for some of those smaller companies. We have a large range, from the, from some of the s- some of the small micro caps like Lisa mentioned, but maybe SMID cap is, it’s where our sweet spot is.
[00:51:34] Pierre Daillie: matters is what the ultimate outcome of the investing exercise is, which is that, if you’re going to maximize your returns over the long term, the best time to be investing is obviously when prices are low not high and getting higher. And so given the fact that the story hasn’t changed from let’s say two or three years ago which is the better opportunity to invest in, in the market that’s rising and peaking, or to invest in a market that has experienced a drawdown? And I think this goes for the technology sector in general, but we’re sitting at a point in time where the opportunity, the second chance that investors said they were looking for [laughs] has come.
And, now it’s decision time, it’s very hard and behaviorally, it is difficult to make the decision to invest in a market that is, that, that has dropped in value. But that is ultimately the time when you’re gonna get the best returns in the long run. The return expectations is what has
[00:52:46] Ali Urman: risen.
Yeah. I think here, this goes back to how we started. But before we started the podcast, we were talking just about market conditions. And I said, I don’t know why are biotech stocks, going down when company fundamentals and the science is only increasing or staying consistent. I think that’s just a way of summing it. And of course we can, debate further about what’s actually going on, right? There’s a lot of things going on within the world that are certainly putting pressure on the market. Even just within the healthcare space, we didn’t have really an FDA commissioner. We had an acting FDA commissioner. We now have an FDA commissioner. Maybe that will create more sort of stability within the healthcare market. There’s always a question, drug reform, drug pricing sometimes that can affect the market as well. Different people, leaving posts-
… et cetera, causes some instability. I think there’s some specific healthcare reasons why there’s been challenges. And obviously, as you mentioned, globally, there’s been some challenges with a pandemic and more [laughs] obviously interest rate. There, there’s been a lot of conditions that have affected the market, but I think more broadly, your point is well taken, which is, do you wanna jump on the bandwagon when everything’s going up, or would you rather be here at the bottom when, there seems to be uncertainty in the world we live in? But less certainty than the fact that markets usually rebound when we go down. That’s the way that we’re viewing it right
[00:54:18] Pierre Daillie: now.
Thank you both so much for your insight and your incredibly valuable
[00:54:23] Ali Urman: time.
Thank you, Beer. Thank
[00:54:25] Lisa Langley: you, Ali. Yeah, as always a pleasure. Always a pleasure to
[00:54:50] Ali Urman: be here.
Thank you so much.
Listen on The Move
If you're at all interested in what the next decade has in store for investors in the Genomics and Biotech Sector, stay tuned. The innovation, disruption, and breakthroughs taking place at companies in this space are destined to be among the most exciting for investors in the period ahead.
It was an honour to chat with Emerge Canada CEO, Lisa Langley and ARK Investments' Ali Urman about the Genomics and Biotech Sector, as defined by the holdings of the Emerge ARK Genomics and Biotech ETF (ticker: EAGB:NEO).
Lisa Langley is CEO at Emerge Canada Inc. Her firm is the sponsor of Emerge ARK ETFs. Lisa Langley's firm, Emerge Canada launched the Emerge Canada Inc. in 2019 to bring Canadians actively managed, innovation focused investment strategies. Emerge offers ETFs, Mutual Funds and Separate Accounts, sub-advised by ARK Investments, led by investing legend and household name, Cathie Wood.
Ali Urman is ARK Invest’s Genomic Revolution analyst, responsible for the company’s research on Gene editing, DNA sequencing, Stem cell technologies & Immunotherapy.
We discuss the Genomic revolution – Ali explains the transformative convergence of Next-generation DNA sequencing, Artificial Intelligence & CRISPR gene editing. We talked about some of the revolutionary medical breakhthroughs borne out of the massive progress taking place in biotechnology. Following this we get into how ARK picks their Genomics stocks, and the once in decades opportunity markets have handed investors post the recent market drawdowns of the last year, to accumulate diversified holdings in the space. Enjoy the episode.
More on EAGB
ARK Investments - Big Ideas 2022
Ali Urman's section at pg. 77
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