The Building of the Biotech Revolution

Written By Adam English

Posted May 28, 2013

Revolutions have a funny way of starting in a small and amorphous way…

They begin with a cornerstone that shapes everything to come. It is the reference for all of the other stones that form the foundation.

Before you know it, the ground floor is in place.

Progress is limited, though — and a keystone needs to fall into place to push on.

Once it does, everything is in place to build a towering monument that soars to dizzying heights.

The cornerstone of the biotechnology revolution was placed in 1980. But what you might not know is that it nearly didn’t happen…

A patent examiner rejected General Electric’s application for a patent on a bacteria developed by Ananda Mohan Chakrabarty that was capable of breaking down crude oil.

The Cornerstone

The first appeal was lost by GE, but the second was won.

The case ended up on the Supreme Court docket where justices ultimately ruled 5 to 4 that that a living, human-made micro-organism is patentable subject matter. The precedent became the point of reference for years to come.

Suddenly, the race was on to patent new genetic modifications to existing organisms and to isolate and modify variations of human DNA and proteins…

Over the last three decades, we’ve seen an explosion of patents on modified and engineered bacteria, viruses, isolated and manipulated human cells, plants, and even entire animals. It has created countless opportunities and redefined entire companies.

I’m sure most of our readers have heard about Monsanto, but how many of you are aware this company has been around since 1901? By the 1940s, Monsanto was a leading plastics and chemical producer… It wasn’t until 1983 that it entered the biotech sector and patented modifications to plant cells. The implications of this early move have come to define the entire corporation, for better or worse.

Later applications started to define the precedent for allowing human-based genetic patents.

In 1998 the U.S. patent office allowed a broad patent on primate stem cells. In 2001 a second patent exclusively focused on human stem cells.

There are now over 3,000 to 5,000 U.S. patents on human genes — and 47,000 on inventions involving genetic material.

Isolation of genes led to synthetic compounds like Lipitor and Plavix… By the late 1990s, direct study of genetic coding isolated more complex conditions such as cancer and autoimmune disorders… A decade later, investors are starting to see how a full-blown revolution in biotech will grow from here.

How does all of this translate in the market?

The iShares NASDAQ Biotechnology ETF (NASDAQ: IBB) is up about 35% for the year.

Biogen Idec (NASDAQ: BIIB) has a treatment for spinal muscular atrophy and multiple sclerosis in early trials. Its shares are up about 45% for the year.

IBB %26 BIIB Chart

The only problem is that shares are already trading at high values relative to current financial figures. Biogen Idec, for example, is trading around 25x profits.

There’s a better way to get in early on an explosive biotech play.

The Keystone

Drug trials are extremely expensive and lengthy. The average length of time for a trial program is eight years — practically an eternity to see if a speculative investment will truly pay off. And average trial costs to get a drug from the lab and into the market have risen over 60% to nearly $500-$800 million.

Why take a position in a company that has to spend that much over nearly a decade after a patent is approved?

Why not capitalize on the biotech revolution by investing in companies that sell the specialized chemicals that are critically essential to the trial process?

This brings us to the keystone: All the early research and patents are in place, but to push to greater heights, the perfect stone needs to be used to support continued upward growth.

Today I want to share with you one such keystone…

It’s called the keyhole limpet — a sea snail that lives in the shallow waters of the Eastern Pacific.

Medical companies around the globe heavily rely on a compound known as Keyhole Limpet Hemocyanin (KLH), a substance that naturally induces an immune response.

KLH is also an ideal carrier molecule for vaccine antigens (substances that promote the generation of immune responses) against cancers and infectious agents.

Hundreds of drugs rely on KLH in the trial process to get into the market.

But there are only 100,000 of these snails left in the wild. Once the KLH has been extracted from them, they die.

The scarcity and importance of KLH has driven the cost per gram to between $35,000 and $900,000 per gram, depending on the quality. The average drug needs 115 grams in total.

The protein is absurdly massive and is impossible to synthesize, even with the most advanced technology available.

That leaves one company with a distinct advantage: It has learned how to grow the limpets on land and extract the protein without killing them…  

And it has patented the process.

The company just positioned itself as the keystone to the future of the useful application of biotechnology. The KLH it produces will foster a medical revolution that cures several types of cancer, autoimmune disorders, congenital defects, and more.

Outsider Club‘s Nick Hodge recently returned from a visit to the California laboratory where this company has perfected this process… and next week, he will be releasing the video footage of his meeting with the company’s CEO and his tour of the facility.

You don’t want to miss this. Stay tuned.

Take Care,

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Adam English for Outsider Club
Follow Adam on Twitter @AdamEnglishOC