When “Profitable” Isn’t Good Enough

February 19, 2013

  • Bending the cost curve: Mapping the human genome falls from $3 billion to $4,000… but is it a worthy investment?
  • Patrick Cox on how you can profit from 2 million researchers tapping the ultimate life-science database
  • U.S. successfully chokes off one of the world’s biggest gold flows… while India fails in its own effort
  • You might think airfares are too high… but are they high enough to keep airlines aloft in the post-merger world?
  • When football pride earns you a traffic stop… “Purple Hearts for carpal tunnel”… a gold play George Soros wouldn’t have to publicize… and more!

  It cost $3 billion to draw the first rough map of the entire human genetic blueprint — the Human Genome Project that became a reality in 2000.

Nowadays, “the cost of deciphering a person’s genetic instructions has dropped faster than the price of flat-screen TVs,” according to NPR.

And the process is much quicker. “Instead of years, it can take just weeks. Instead of an army of scientists, all it takes is a new high-speed sequencing machine and a few lab techs. Instead of billions, it can cost as little as $4,000. And many are predicting the $1,000 genome is coming soon.”

The potential is limitless: “Some doctors are starting to sequence cancer patients to find the mutations behind their tumor. Oncologists can then sometimes find better drugs to treat them. Other specialists are using sequencing to diagnose mysterious genetic conditions.”

“It is not theoretical or futuristic,” says Harvard geneticist George Church. “It is today. And it is everyone.”

  And its investment potential is almost nil.

Gee, you weren’t expecting that, were you?

“I think that genome sequencing is an enormously important part of the larger genomic breakthrough,” explains our tech maven Patrick Cox. But it’s not the “next big thing” for biotech investors.

“From the beginning, there have been regular announcements of this or that company offering a new method along with dramatically lower prices for analyzing a person’s genome. No single company had sufficient IP to dominate the market and pull in really big profits, so prices continue to fall. This is due not only to cheaper computational power, but to competition.”

In other words, genome sequencing is quickly falling into the same category as blood testing and other diagnostics. It can be profitable, but that’s not what Patrick cares about. “We are assembling a group of transformational companies with blockbuster potential,” he told his readers last week. “‘Profitable’ is not close to good enough for our purposes.”

  “The sequenced genome is essentially worthless even to most doctors,” Patrick goes on. “We have over 50,000 genes and our understanding of their individual functions is evolving at a breathtaking pace.

“As Moore’s law continues to drive down the cost of sequencing and analyzing sequencing results, more and more genomes will be available and the pace of discovery will accelerate even further. The killer app in genome sequencing, therefore, is bioinformatics — the computer processing and analysis of genomes in a manner that is useful to the customer and health care provider.”

One company Patrick follows has compiled “the only integrated database of constantly updated information on the specific cell types, the genes functioning within those cells and genetic information about the diseases that afflict them.”

This database gets 2 million regular unique visitors per month. “These users are, for the most part, scientists, with a few exceptions like me. Many of these users, therefore, control significant research budgets.”

Nice, but what does that mean to the bottom line?

100  Let’s run the numbers: “For purposes of valuation,” says Patrick, “companies like LinkedIn and Facebook estimate that each unique regular visitor is worth about $65.”

This company’s users are, of course, more valuable. Research suppliers and pharmaceutical firms actually pay for access to the database. “But let’s assume,” says Patrick, “that these highly educated and connected users are worth only $100 per unique set of eyeballs. That’s $200 million — so far.”

[We’ll interrupt Patrick long enough to point out the parent firm of this company has a market cap of $205 million.]

But $200 million is only the start. “The real money in sequencing is to be generated via practical analysis and interpretation of sequenced genomes. This product would not only describe potential problems, but could provide information on diagnostic, nutritional and behavioral approaches to countering potential genetic problems.”

And that’s just genomic sequencing. “There are many ways for the company to monetize these users,” Patrick says. Essentially, we’re talking about the world’s most important site for biological research, “a sort of scientific online encyclopedia of all cell type, gene and disease information, combined with the ability to sell research products from numerous sources.”

The parent company, you ask? It has six other subsidiaries working on projects equally as promising and lucrative — including the one that can immortalize human cells.

[Ed. Note: We knew we couldn’t keep “The Promise of Immortality” under wraps forever. For reasons explained in detail at this link, we’ve had to move swiftly to preserve your first-to-profit edge as an Agora Financial reader. To take full advantage of our offer, please act before midnight tomorrow.]

  Stocks are rallying today on news of a possible Led Zeppelin reunion.

Well, that’s at least as credible as the “optimism over deal making and data showing rising investor confidence in Germany” cited this morning by Bloomberg. Should the current numbers hold, the Dow will close decisively above 14,000.

Gold, after holding the line on $1,600 Friday, is sliding back toward that level — $1,604 at last check. Silver’s at $29.48.

  Looks as if the U.S. government’s latest sanctions have put the kibosh on Turkey’s “gas-for-gold” trade with Iran.

For nearly a year, Turkey has bought Iranian natural gas with Turkish lira (because dollars and euros are verboten), and then the Iranians exchange their lira for gold at Turkey’s state-owned Halkbank, and the gold is shipped to Iran via Dubai.

No more: “Halkbank can only accept payments for Turkish oil and gas purchases,” a Turkish banking source tells Reuters, “and Iran is only allowed to buy food, medicine and industrial products with that money… They have to prove what they are buying… so gold exports will definitely fall.”

Turkish Economy Minister Zafer Caglayan appears to be conceding the point. According to the Reuters dispatch, he “signaled a decline in the trade last week when he said that, while Turkey would not be swayed by U.S. pressure to halt gold exports to Iran, Tehran’s demand for the metal was expected to fall.”

  Nor is the trade likely to revive: The Iranian foreign ministry is rejecting a Western offer to allow a resumption of the gas-for-gold trade if the Iranians close their Fordo uranium enrichment plant.

Talks between Iran and the Western powers start again a week from today. We’re not holding our breath…

  “So many people imported and dumped gold,” Mohit Kamboj, president of Bombay Bullion Association told Reuters, “after rumors from the first week of January of an import duty hike. People waited for the duty to increase and earn more profits.”

According to Kamboj, 100 tons of gold were imported into India in January, up 40% from last year’s average monthly imports. Worried about its growing current account deficit, India recently attacked gold imports by upping the duty rate 50%, from 4% to 6%. Of course, this caused a scramble for gold before the increase took effect on Jan. 21.

India’s next budget announcement is scheduled for Feb. 28, “and if gold imports continue apace,” says Reuters, “traders are concerned New Delhi may take further action to curb demand.”

“The hike in duty will only lead to large-scale smuggling,” Kamboj says, “and loss in revenue for the government.”

  “The U.S. airline industry is close to the end of a decade-long consolidation,” says our macro strategist Dan Amoss, assessing the American Airlines-US Airways merger.

In 2011, Dan knew American was a dead airline flying… and readers of Strategic Short Report hauled in 95% gains as shares slid from $6.60 to 35 cents.

“For years, competition was brutal. Airlines engaged in price wars to gain market share. While this kept a lid on airfares, it also depressed returns for the entire industry. You may think airfares are high, but they’ve not been high enough to allow the indebted, capital-intensive industry to sustain itself.”

But now United has swallowed Continental, Delta has subsumed Northwest and once this latest merger is done, “competition will lessen,” says Dan, “and airlines will have more pricing power.” [Whether it’s time to become an airline investor again is an entirely different question, which Dan explores in today’s 5 PRO…]

  And now for a police state alert, Ohio State football edition: Police may not know the difference between buckeye and weed. At least one cop in Tennessee doesn’t.

An older couple from Ohio was driving through Memphis when they were pulled over. The offense: having a decal of a buckeye leaf on their bumper. As in the leaf that Ohio State players wear on their helmets to mark various accomplishments.

Bonnie Jonas-Boggioni was behind the wheel. “They were very serious. They had the body armor and the guns,” she told The Columbus Dispatch.

“One of these things is not like the other…”

She explained it wasn’t marijuana. “He looked at me like I was speaking a foreign language” she said. “It’s just amazing they would be that dumb.”

Even more amazing is that they’re pulling people over for bumper stickers…

  Now for your daily dose of drones: The military plans to award the new “Distinguished Warfare Medal” to service members who fight off cyberthreats… or operate drones.

The news isn’t sitting well in much of the defense community… because the medal ranks above the Bronze Star — which is awarded for service in a war zone, many times in direct combat.

A retired Green Beret tells the Washington Times “I suppose now they will award Purple Hearts for carpal tunnel syndrome.”

Ouch.

Another Pentagon employee said the toughest part about manning a drone is “spilling hot coffee in their lap as they move their joystick.”

The people who signed up to man these things probably never imagined the flak they’d get…

  “Do you remember the old comic strip called Spy vs. Spy?” a reader inquires obliquely on the subject of drones.

“I do, and I’m guessing nothing has changed. Once the gummint starts using drones on U.S. citizens, it will only be a short time before the ‘citizens’ come up with workable, cheaper, underground countermeasures. Kind of like banning firearms.

“If you think the illegal drug trade is bad, just wait for this black market to bloom. They’re just idiots who think long-term planning is ‘What’s for lunch?'”

The 5: “Remote-controlled drones that can record video footage are being sold in large retail stores,” according to The Sydney Morning Herald.

We don’t doubt the American people’s capacity for ingenuity to outwit the drones… at least some of the time. But all the same, it couldn’t hurt to exercise your right to petition the government for a redress of grievances… you know, while that part of the First Amendment is still in effect. You can sound off along with other outraged Americans at this link.

  “It’s obvious,” says a reader with much certainty, “prices of silver and gold are being crushed by Soros and the hedge fund cronies who know their paper silver and gold will be worthless.

“Tell us when physical holders are turning in their metals. Now, that will be newsworthy (like China, India , Russia). A new reserve currency is a given.”

The 5: Or the hedgies just don’t trust the paper version the way they used to. Over the long weekend, Currency Wars author Jim Rickards suggested Soros might be trading in his GLD shares for the real thing; physical gold purchases don’t have be reported on a 13-F Form to the SEC.

  “Correct me if I’m wrong,” a reader writes after we noted the five-year anniversary of David Walker resigning as comptroller general, “but isn’t the increase in the national debt since then 77%, not 44%?”

The 5: Nostra culpa. We did the right calculations, but with the wrong numbers. It is indeed 77%.

As usual, things are worse than we suspect!

  “During a recent seance,” a reader writes with tongue firmly in cheek, “some astral wires got crossed and I accidentally obtained an incomplete portion of alien plans to invade Earth.

“I relay them to you as best I remember them.

“‘ …whatever else our invasion force does, once the attack begins, there must be one guiding principle. Never — I repeat, never — do any harm to the American location called Washington, D.C. It must be kept intact and functioning. Only then will we be certain that Earth can be colonized with the least resistance. We need the current government to continue their present course of insanity to prevent America from joining any effective counterattack. If you do your part and leave Washington, D.C., untouched, we will be assured that the American government will unwittingly do its part to bring about our total mastery of the human race. The attack will commence as scheduled at…’

“Sorry, 5, but that was all I got before I lost the connection. I hope you find the information useful.”

The 5: Yes, but would they let Paul “alien invasion” Krugman keep his job at The New York Times?

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. “I’ve met with a German broker who trades in gold bullion and Zimbabwean cigarettes,” writes Chris Mayer. “I met a transplanted New York City investment banker working on deals from Saudi Arabia to Qatar. I met with a successful Australian mining entrepreneur working on his next startup.”

Chris is in Dubai for another visit, following up on a stop he chronicled in World Right Side Up. But what’s it like after the epic bust there, the “Du-bubble”? Stay tuned for a full dispatch later this week…

rspertzel

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