Guardant Health (GH) vs Invitae (NVTA)

Investment Analysis Clubs Saul’s Investing Discussions
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Fellow Fools

I face a conundrum trying to understand the respective merits of 2 very similar investment and the choices folks have made here and wanted to seek some input from those closer to the action on this before I take a position.

Guardant Health and Invitae do very similar next generation gene sequencing using a common platform provider (so the underlying base tech is not necessarily a differentiator).

Overall Business Comparison

Guardant Health: A precision oncology company, provides non-invasive cancer diagnostics. It offers liquid biopsy tests for advanced stage cancer, such as Guardant360, a molecular diagnostic test that measures various cancer-related genes from circulating tumor DNA (ctDNA); and GuardantOMNI, a broader panel measuring various genes from ctDNA. The company also provides LUNAR-1 for recurrence detection in cancer survivors; and LUNAR-2 for early detection of cancer in higher risk individuals. Guardant Health, Inc. was incorporated in 2011 and is headquartered in Redwood City, California.

Invitae: The company’s tests include multiple genes associated with hereditary cancer, neurological disorders, cardiovascular disorders, pediatric disorders, metabolic disorders, and other hereditary conditions; proactive health and wellness screening; and preimplantation embryo testing and carrier screening for inherited disorders, prenatal diagnosis, miscarriage analysis, and pediatric developmental disorders.

So Guardant is more focused in its domain areas and targeting mainly Onco and focused on liquid biopsy that drives targeted treatment.
Invitae is blood (and saliva) with a broader focus including non invasive prenatal testing which is a large and fast growing opportunity and more 23andMe like and more mass market and predictive.

Sales & Growth Rates

GH:-
GH’s Revenues for the last few Quarters: Q4 25.88m Q3 17.44m (Beat and Miss)
GH’s Revenue Growth rate for last few Quarters: Q4 64.3% Q3 94.9% (Decelerating)
GH’s expected 2019 revenues = $135m and 2020 = $187.5m

NVTA:-
NVTA’s Revenues for the last few Quarters: Q4 42.65m Q3 34.8m Q2 31.45m Q1 26.86m (Beat, Beat, Beat, Mix)
NVTA’s Revenue Growth rate for last few Quarters: Q4 78.57% Q3 105.9% Q2 160.2% Q1 167.6% (Decelerating)
NVTA’s expected 2019 revenues = $223m and 2020 = $326m

So NVTA is nearly double the revenues and whilst both are decelerating, NVTA is holding upabout 1/2 or 1 quarter higher in growth rates.

Valuation

GH:-
GH has a market cap of $7.57B and a P/S of 29.54 (which makes no sense - I think it is more like 60+)
GH has an enterprise value of $7.19B and a P/EV of 79.34

NVTA:-
NVTA has a market cap of $2.18B and a P/S of 11.32
NVTA has an enterprise value of $2.13B and a 14.45

NVTA has a much lower market cap and at least 1/3 the valuation if not 1/6th.

Overall
NVTA has a much lower market cap and at least 1/3 the valuation if not 1/6th is growing 14% percentage points faster and is forecasted to end up a much larger revenue company. Companies have similar balance sheets.

So my question:

Besides the business model focus (clinical diagnosis and precision treatments vs predictive health testing), the base tech is very similar so they could crossover and play each other’s respective roles, on a pure investment basis - why wouldn’t you prefer to be in NVTA rather than GH?

As a follow up - given both companies’ respective glide paths in decelerating revenues - at what point are holders going to bail?

Thanks
Ant

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Ant,

Great breakdown.

Both GH and NVTA are ~3% positions for me. The run GH had after their latest report was incredible; at one point I calculated its P/S ratio near 95ish?! It’s obviously come back down to reality, roughly 30% off its high.

There has been some great discussion on the premium boards recently, regarding GH (great work Starrob).

https://discussion.fool.com/4056/a-patient39s-views-on-liquid-bi…

GH has a long way to go before a liquid biopsy is the first line solution. I’m fine with being patient though, as the market opportunity is large and my allocation is small.

-Dan

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I’m assuming just because they’re liquid, GH and NVTA aren’t going to be hit negatively if Theranos trial goes ahead with all the negative publicity surrounding their blood test? That was about pin prick vs needle as opposed to blood vs tissue?

Ant

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Ant, I’m sorry but you don’t seem to understand what Guardant is all about. I keep seeing you worry about last quarters revenue being only up 64%, when revenue was up 80 something percent for the whole year, and worry about them having a high EV/S ratio, and irrelevant stuff like that. Ant, they are providing a simple blood drawing for a cancer diagnosis instead of going into someones chest with a scalpel! Even before the FDA approval that they are fast tracked for, they have gotten reimbursement approval by BC/BS, Cigna, and a considerable number of Medicare districts.

Here’s an article written by a patient advocate about her own chest biopsy. It will turn your hair grey. Here’s what her recovery from a regular chest biopsy looked like:

Here’s what my recovery looked like:

A partially collapsed lung
Coughing up blood
Significant chest pain and shortness of breath
Extended monitoring for low blood pressure
Multiple chest X-rays
Extra time off from work due to pain and shortness of breath

And for all that I got inconclusive results because the team wasn’t able to get an adequate sample of tissue.

That’s not from the definitive surgery. That was from the biopsy! Invasive surgical biopsies look to me to be finished (chest and abdominal biopsies, anyway). What would you choose? A blood draw or that?

The post-procedural complications and recovery I experienced are fairly common and well-documented as “minor complications” in the literature. Looking back, I wish I had known more prior to the procedure on what to expect from a “traditional biopsy.” I also wish there was a faster, less invasive, less expensive, less traumatic way of collecting tissue.

I imagine what would have happened if I could have had a liquid biopsy instead of the traditional one: no overnight fast, no trip to New York for the biopsy. Less (or no) time off from work for me and my care partner. No panic attack, no partially collapsed lung, no pain or coughing up blood.

They are already working with loads of oncologists, and over 40 biopharmas doing research in cancer. They are expected to get FDA approval this calendar year, which will open the floodgates even wider. Do you really think last year’s revenue or revenue growth has any relevance to the future of this company? Ant, some of the things you’ve said, like trying to relate it to Theranos, are so off the wall, with false naivety, that I have to wonder whether you are short the stock and trying to scare people with boogymen. I’d hate to think that, but I can’t imagine that anyone could do so much research on a company’s numbers and not know anything about what the company does. You don’t seem to know anything about Guardant360 or Omni platforms of tests that they do for oncologists and biopharmas, or about the huge multi center study they just reported which showed their blood draw at least equalled the results from surgical biopsies, or the large U of Penn Medical School study that was reported a few months ago. And do you think BC/BS approves a study for reimbursement before FDA approval, unless it was something extraordinary? And then you throw in nonsense about Theranos, very falsely innocent: “(But) that was about pin prick vs needle as opposed to blood vs tissue (wasn’t it)?” Come on Ant…Haven’t you even read the earnings release and the conference call? And if you are short it, and trying to scare people, why don’t you disclose it?

Best,

Saul

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Saul - yes I’ve read through the details whilst looking at GH vs NVTA and can see how the tech performs. (I’m also working with a client with a similar link from NGS to targeted therapies so I get the space).

I’m not short at all (I’ve never shorted anything ever and that’s OT for this board anyhow) but considering a long position. Have you ever read a post of mine that raises shorting?

Regarding growth rates and revenues versus what the business is about. I’m surprised you dismiss growth and revenues are an irrelevancy. Shopify as an example has a recurring business model with a massive moat and leaving aside valuation - you chose to sell it just at the point when it declined in growth rates to where GH is right now. Whilst at the same time you advocate GH with a complete dismissal of the very same growth trajectory that made you abandon another investment.

My question about Theranos wasn’t based on the underlying technology but purely whether those of you closer to the US and Weat Coast feel that there could be enough negativity from either that - exactly that mis-understanding of the underlying nature of the tech if a trial and all the hubris that surrounds that will involve or whether there might be any regulatory consequences to have more stringent oversight of diagnostic testing as a result which is not as tightly regulated as drug therapy.

It’s a genuine question from someone the other side of the world who is aware of the Theranos story and the fakery of what went on but not close enough to the US to judge what the PR/FUD could do.

Granted I might not know as much about these 2 companies as I should which is why I posted asking for additional insights…

…but I’d rather you didn’t question my integrity or motives with suggestions of false naïveté

Ant

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Sorry Ant, I’ve never thought of shorting anything either. I don’t have the guts anyway.

Theranos was a fraud all the way through. No multi-center university medical school studies for them. They just made up stuff.

As far as the revenue, what I was trying to say is that this is a biotech. Most of them have little or no revenue at all until they get FDA clearance for their product. Zero revenue! Nada! except for grants. Guardant is unique in a way because their product is so good that they have considerable revenue even before FDA clearance. Once they get FDA clearance their revenue will theoretically explode, and that’s why I’m saying that their pre-approval revenue isn’t what anyone is buying the stock for.

I had sold out because I felt that if their huge Nile study against standard of care scalpel biopsy didn’t prove out to be at least as good, the whole thing could crash. But it did and the price went from $40 to $100 in a few weeks (now backed off to $79, this week, just up 100% or so in 4 or 5 weeks). As they are fast-tracked by the FDA, and they have done many, many, many studies under the FDA’s guidance, it seems that they will probably get rapid approval when they apply. They are waiting because they don’t want approval just for lung cancer, but as a standard of care, and they are waiting until they have a “perfect” proposal to submit. Or that’s how I understand it anyway.

Best,

Saul

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Hi Sauk - Ok thanks for clarifying the point about the revenue pivot around FDA approval point that helps me understand the assumption and revenue question.

I guess one of the issues I remain to be convinced about was not what tremendous contribution liquid biopsy could make - that’s huge…

…but the fact that really GH is using 1) the same NGS platform as the solid biopsy 2) the same NGS platform as other liquid testing and therefore it’s only real advantage at all is:

  1. generating more evidence than other players with identical testing platforms
  2. connecting with more centers
  3. processing testing faster (using the exact same platform)
  4. arranging more relationships with pharma for targeted precision medicine.

I just don’t know whether GH really has that advantage given other companies are selling much much more already or appear to be more active in sales force representation with clinics already.

Hence without the assurity of that advantage my concern then comes back to relative business results and valuation.

Ant

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Ant,

Sorry, I have no time to reply in detail this weekend, but GH and NVTA are very different companies. Here is my deep dive on NVTA:

https://discussion.fool.com/deep-dive-invitae-34140364.aspx

The stock is up about 65% since my initial investment on 2/11. I think this is a really compelling company. See link for more details. Note: they are burning through cash, so act with caution.

Thought: you need to do a lot more research to really understand each. The info is all on-line for you, if you take the time to dig.

Best, Swift…
Long NVTA & GH

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I found the recent presentation by GH CEO (Helmy) (http://investors.guardanthealth.com/events/event-details/cow…) to be tremendously helpful in furthering my understanding of the company. Well worth the 25 minutes it takes to listen and follow along with the slide deck for a very detailed overview of their business.

Although there may be some overlap with the specific genes tested, it sounds like they have different ways of processing these tests. I think they’re both combing biochem with machine learning in their proprietary software. They also both talk about leveraging the genetic data they’re collecting from all of these samples.

GH just seems to be pushing in so many different areas: clinical studies (Nile), healthcare coverage (huge growth in insured lives, recent additions of Bluecross) partnerships with pharma and specifics on links to leading treatments (merck / pfizer / astrazeneca / bristol-myers squibb), as well as the push for FDA approval / medicare coverage.

I think NVTA is operating in much the same spaces (though for a much wider range of medical conditions) but I’m having trouble finding the specifics on all of their partnerships and initiatives. This is why I haven’t yet started a position. I like their business model - low-cost, genetic information for everyone as well as personalized medicine. Their explosive growth in test volume seems to point to the market for this model but I just haven’t been able to pull the trigger on them yet. GH’s clarity of vision and laser focus on cancer sold it early on for me. Still working on NVTA.

Jeff

Long GH, NVTA - no position (yet)

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Great discussion, learned quite a lot just reading this thread.

My question is this. How big is this market?

Assuming that GH gets all its FDA approvals, what kind of growth is possible going forward?

Is this a 10 billion dollar market? 20 billion? 50?

Chris

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From earnings call:

“We are making exciting advancements in these programs and estimate the market opportunity for our commercial and pipeline products is over 35 billion in the United States alone.”

Not sure if that is for multiple different forms of cancer or only what they have been working on currently.

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I’m also wondering how big Lunar could be in terms of revenue or potential partnerships with big pharma companies. The global oncology drug market is estimated to be $150+ billion by 2025. Guardents solutions don’t just provide screening for easy detection, they also provide resources to improve R&D of new drug solutions.

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The interesting thing about GH’s Focus on onco is that with all their announced alliances - MERCK, MERCK, Pfizer etc, the hands down leader in onco is Roche and they have their Foundation Medicine diagnostic solution at their disposal. Now they aren’t finding it easy going and GH maybe a formidable competitor but right now Roche is the gorilla personalised medicine drug company.

Ant

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Ant, I suspect from your puzzlement on Guardant that you aren’t a MF Rule Breaker subscriber. If one is going to be a passive investor, one can just invest in a couple of mutual funds or ETF’s and sit back. If you are going to invest in aggressive companies like you and I do and the board does, you need all the information you can get. The cost of an annual subscription to Rule Breaker is trivial if you get just one great recommendation from it.

(I have pointed out how MF RB recommended Shopify two months in a row in 2016 and grabbed my attention, and I quintupled my money by the time I sold it two years later, and that easily paid for 100 years of subscriptions. That’s not an exaggeration. If the sub is approximately $200 a year and if you invest just $5000 in a very promising stock, and sell it for $25,000 two years later, you’ve made $20,000, which is 100 times a yearly subscription.) And Ant, you’ll find a lot of recent information on Guardant on MF. It’s worth the investment.

Saul

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While I am a investor in Guardant, people should be aware that Guardant is not the only company playing in the Liquid Biopsy space and that there are other companies that could put out solutions just as good, if not better than Guardant, in the future.

There are a number of well funded players that do something similar to Guardant besides Invitae (NVTA), including Illumina spin-off GRAIL, who has done a similar study with lung cancer as a focus called the SUMMIT trial https://grail.com/clinical-studies/summit-study/.

I believe Noninvasive vs. Invasive Lung Evaluation (NILE) is a US based study consisting of 300 participants https://clinicaltrials.gov/ct2/show/NCT03615443 that started on February 12, 2016 and has a primary expected completion date of December 31, 2019.

The SUMMIT trial https://grail.com/clinical-studies/summit-study/ is a UK based study designed to enroll approximately 50,000 men and women age 50 to 77 years who do not have a cancer diagnosis at the time of enrollment. SUMMIT aims to evaluate a blood test designed to detect multiple types of cancer, including lung cancer. Approximately half the participants will be people at high risk of lung and other cancers due to a significant smoking history, and the other half will be people who are not at high risk for cancer based on smoking history. Participants will be followed annually for three years and then will be followed for five years through national health registries as well as their medical records.

So, the SUMMIT study might be behind NILE as far as when the study started but it is a far larger study (meaning it will likely have more statistical meaning when complete) and will probably lead to a lot more knowledge of cancer for GRAIL when the study is complete.

So, people should beware of thinking that Guardant will become the “Intel of Liquid Biopsy” and reset expectations to include that in long term Guardant will likely have significant competition in the space by bigger funded competitors who might eventually put out competing products that could be “better than” Guardant’s products.

The opportunity is large and there is plenty of room for multiple players in the space to win, including Guardant but ever since I have come on the Fool, there has been a tendency for some investors to become “too enthusiastic” about a company’s prospects.

Just a “for instance”, I have seen some investors express the belief that Liquid Biopsy will replace Tissue Biopsy. I hope people realize that belief is a moonshot that could take well over a decade, if ever, to complete and people should not be factoring in that future into any of the Liquid Biopsy stocks. I don’t think any of the Liquid Biopsy companies are currently talking about completely eliminating tissue biopsy. What most of these Liquid Biopsy companies would currently be trying to prove is a “Liquid Biopsy First” paradigm, meaning that companies like Guardant want their tests to be used first and if the test pops positive then the oncologist would have a “best treatment” for the specific positive biomarker but because Liquid biopsies can have false negatives, if a Liquid Biopsy test pops negative, the tissue biopsy is the next line of testing.

Here are a few companies that I have found that might directly compete or might compete in the future with Guardant:

  1. Seer, founded by Omid Farokhzad, a former professor at Brigham and Women’s Hospital: https://xconomy.com/san-francisco/2018/12/17/seer-launches-t…

  2. Karius (more for infectious diseases): https://www.kariusdx.com/

  3. Freenome: https://www.freenome.com/

  4. Apostle: https://apostlebio.com/

  5. Biocept: https://biocept.com/

  6. GRAIL, A Illumina spinoff in which Bezos and Bill Gates still have a stake: https://grail.com/

  7. Johns Hopkins University is also investigating a liquid biopsy that uses genomic and proteomic biomarker data. It published a paper in the journal Science in January 2018 in which it identified 70 to 98 percent of cancers in more than 1,000 previously diagnosed patients. That test, CancerSEEK, is being evaluated in 10,000 women with no history of cancer with the Geisinger health system in Pennsylvania.

That’s just to name a few. People should be aware before investing in Guardant Health that it’s not a situation like Abiomed with no competitors. There are many deep pocketed competitors playing in this space and there might be a situation where Guardant gets a certain test approved and 5 years later someone could come out with a test that has a better rate of detection which could wipe a Guardant money maker off the board, which could be a issue if at the time that money maker is Guardant’s largest product. So, people should be careful in projecting unending growth to infinity. What the Lord giveth, he could taketh away, so people should not put Guardant on autopilot and should pay close attention to what other competitors would be doing.

I invested in Guardant because I think Guardant has decent odds of success over the next 5 to 10 years but this is a company I pay close attention to. I pretty much have Amazon on autopilot, meaning, I don’t put intensive study into what Amazon is doing but Guardant is one of those companies I do pay close attention.

Starrob

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With Guardant Health (GH) and Invitae (NVTA) being actively discussed over the past few days (and to add to what Starrob posted earlier today) I thought it was good timing to list companies (some public, some private) also operating in the “no tissue biopsy” space for disease/cancer detection. The “vehicle” used for screening/detection is either blood, urine, stool, sputum or VOC (volatile organic compounds i.e. breath).

I am currently invested in Guardant, and feel they have a running start, but there is a tremendous amount of research being done by many companies and academic institutions, so GH is not a sit back and relax kind of stock. The good news is that the TAM is very large, so plenty of space for many winners. From my understanding of the possibilities/limitations based on the specificity and sensitivity results (no test can currently achieve 100%), it looks highly unlikely that a single approach (using biomarkers for example) will detect “all” cancers. Some tests will work better for detecting certain disease types and the evolving market will fragment accordingly.

Oncocyte Corporation (OCX): https://www.oncocyte.com/
Parent organization: BioTime: https://www.biotimeinc.com/
OncoCyte is focused on the discovery, development and commercialization of novel, non-invasive, liquid biopsy diagnostics for the early detection of cancer. The company’s work is based on a proprietary set of cancer markers characterized, in part, by broad gene expression patterns in numerous cancer types. The biomarkers were discovered as a result of ongoing research within OncoCyte on the gene expression patterns associated with embryonic stem cell development. Additionally, lung biomarkers were discovered through extensive research and collaborative agreements with The Wistar Institute.

  • Confirmatory diagnostics for 0.8-2.0cm nodules
  • Breath tests, VOCs are in early stage
  • 190 biomarkers identified

Exact Sciences Corporation (EXAS): https://www.exactsciences.com/
Molecular diagnostics company with an initial focus on the early detection and prevention of colorectal cancer. Exact Sciences launched Cologuard in 2014, the first stool DNA test for colorectal cancer.
Related to the development of the colon cancer biomarker test (Cologuard)

  • In 2009 had 90 clinical sites with 10,000 patients, Medicare and FDA providing feedback
  • In collaboration with the Mayo Clinic, over 1,000,000 patients were screened and 4,700 early stage cancers were detected
    Currently focusing on DNA methylation markers and analyzing them using rtPCR. This has a relatively low cost and >90% sensitivity and specificity. This has potential utility in screening, diagnosis, detection of residual disease, and recurrence.

Veracyte (VCYT): https://www.veracyte.com/
Develop genomic classifiers by leveraging innovations in clinical science, RNA sequencing and machine learning to answer specific clinical questions. Today, these answers can often only be obtained using patient samples obtained through surgery.

  • Products include Afirma for thyroid nodules, Percepta (covered by Medicare in 2017 for idiopathic pulmonary fibrosis), and Envisia (a genomic classifier for idiopathic pulmonary fibrosis)
  • Assay looks at variants, fusions, copy number, and mitochondrial DNA
  • Cost effectiveness is due to drop in invasive procedures

Oncimunne (Oncimmune Holdings PLC:ONC traded on the UK exchange): https://oncimmune.com/
Have pioneered technologies that enable early cancer detection. The company’s proprietary technology platform, EarlyCDT® is extensively validated for all types of lung cancer and for hepatocellular carcinoma (liver cancer). Oncimmune is helping to lead the advancement of early cancer detection across a range of solid tumour types.

  • In 2016 received CE Mark
  • Over 150,000 tests sold
  • Clinical validation involved 1,077 people with cancer and 1,296 controls
  • Serial samples from ovarian cancer were positive up to 4 years prior to the diagnosis of cancer
  • Immune response strength may affect detectability, this assay is better at early stage disease

Ancon Medical: https://anconmedical.com/
Developing a non-invasive technology that can detect a full range of diseases in their earliest stages. Breath analysis is the “Holy Grail” of medical diagnosis technology, providing a simple, inexpensive way to identify minute traces of molecular biomarkers within a point of care situation.

  • Nanomarker Biomarker Tagging (NBT) technology is for Early Detection
  • Looking at volatile organic compounds (VOCs) from cancer cells, leukemia cells, viral pathogens, bacterial infection, (MRSA, Corona Virus, and HPV)
  • The current standard approach for analyzing VOCs misses low concentration VOCs
  • NBT technology combines a tag generator, ion mobility spectrometry and a laser counter to improve detection, there is a separator that separates VOCs by groups

bioAffinity Technologies: http://www.bioaffinitytech.com/
bioAffinity’s CyPath® Lung analyzes a person’s sputum, or phlegm, to find cancer cells that have sloughed off a lung tumor during collection of the sample. To get a sample, a person blows into a simple, non-invasive assist device that acts to break up mucus and help a person cough up the phlegm. The sputum sample is shipped to the laboratory, prepared for analysis and labeled with CyPath®. Cancer cells in the sample fluoresce brightly as compared to non-cancer cells when viewed microscopically. By comparing the fluorescence, cancer can be identified.

  • CyPath is a sputum-based flow cytometry assay, it is a porphyrin microscopy assay, it separates blood cells from non-blood cells
  • Macrophages are important at every stage of cancer, tumor associated macrophages exhibit high porphyrin levels.
  • Separate findings into classes of sputum samples: healthy, high risk, and cancer

Nucleix: https://www.nucleix.com/
Develops innovative non-invasive molecular cancer diagnostic tests. Their highly sensitive and specific tests are based on identification of subtle changes in methylation patterns. Nucleix technology is based on a combination of a new biochemical platform in conjunction with sophisticated algorithms

  • The biochemical assay is able to detect 1/1000 of the typical levels
  • EpiCheck utilizes 15 markers to assess whether a person has bladder cancer
  • Looking at point mutations, as opposed to methylation markers, is an alternative strategy

John

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Its nice to look at other options, but why would you want to invest in reebok when you can own Nike? Why would you invest in La-z-boy when you can own RH or Wayfair?

GH is the top dog here, its really that simple. GH is a rule breaker that is going to own the market. EXACT is intriguing, but IMO, a realistic TAM of 20% of colonoscopy market @ 10m done annually, at $650/test, is 1.3b annually. even at 2b, at 8-10x sales, thats about a double from here. Invitae is a nice complement to the basket as they are targeting alot of the subspecialties, but it might be tough sledding as they are spread thin amongst all the specialties (https://www.invitae.com/en/physician/panelsgenes/). If you want to buy the basket, they’re good holdings.

If you want the Wayfair, the Nike, the Home Depot, the rulebreaker… If you want to hold for 5-10 years and not trade earnings… its Guardant.

And whiles its really, really, really, ridiculously hard to bet against GRAIL, Guardant has 5-10 years on them at this point.

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Its nice to look at other options, but why would you want to invest in reebok when you can own Nike? Why would you invest in La-z-boy when you can own RH or Wayfair?

GH is the top dog here, its really that simple.

Fuma102

First, Guardant, in my opinion, is far from being a Nike or even a Reebok. Nike and Reebok exist in relatively mature industries. Guardant exists in a early emerging industry and that’s a big difference.

In my opinion, Guardant is a company that should be closely watched. I don’t believe Guardant to be a company that a investor simply puts in their portfolio and does not investigate the risks very deeply ever again.

I have Amazon on autopilot. Amazon has plenty of risks but I don’t go around investigating them all because Amazon has a strong record of successfully navigating most of the risks.

What I do in investing would be to reserve most of my hard looks at companies that are in new emerging industries.

Among the worst mistakes that I have seen a investor can make is at the infancy of a new industry would be to declare a “winner” at a nascent stage of the industry before the industry has really even gotten started.

I don’t care how other investors label things, in my opinion, Guardant seems to be a “First Mover” and not a “Top Dog”. I define those two terms as different things. A “Top Dog” would be a company that has already scaled. Amazon is a “Top Dog”. Amazon has profits and positive cash flow. Salesforce is a “Top Dog”. Salesforce has profits and positive cash flow.

A “First Mover” is a company that currently has not scaled to cash flows and/or profitability. A “First Mover” is a leader in a particular industry that has yet to prove out their business model by producing consistent positive cash flows. Some “First Movers” are stronger than others but some examples of companies that I consider “First Movers” are Nutanix, Tesla, MongoDB, Clean Energy, Netflix etc. A “First Mover” is a leader in a industry that investors hope will scale into a “Top Dog”. Some companies have greater likelihood than others to scale. For instance, I think MongoDB has greater likelihood to scale into a “Top Dog” than Clean Energy.

Not all “First Movers” make it to “Top Dog”. Where many investors make their mistake would be in declaring Betamax a “Top Dog” in a emerging industry and discovering too late that Betamax was only a “First Mover” and VHS was the true “Top Dog”.

Most investors around the Fool are smart but even with smart investors, there can be a occasional tendency around the Fool for smart investors to fall in love with a “First Mover” in a emerging industry and prematurely call a company a “Top Dog” and lavish excessive “hype” on their beloved company and sometimes the “hype” winds up not being true.

It doesn’t apply to this discussion but very often when a new technology gets introduced I look at the Gartner Hype curve https://www.gartner.com/smarterwithgartner/5-trends-emerge-i…

It is too bad that Gartner doesn’t have Liquid Biopsy on it’s curve because there have been more than a few times that the Fool has recommended companies right at peak hype, the most notable example being the 3D printing industry. When the 3D industry was right at peak hype, it was amazing to see all of the hype articles people posted on the Fools’ paid boards about fantastic riches waiting to be made but as 3D printing dove into the trough of disillusionment, 3D printing stock prices fell off a cliff and companies like 3D Systems that people already declared a “Top Dog” for home 3D printers had it’s stock price destroyed. What people did not factor in was that they invested in the industry too early to pick the definite winners. Maybe one day there will be 3D printers in the home but the “Top Dog” might wind up being “has been” company HP rather than 3D Systems. Which might be a metaphorical lesson that the eventual “Top Dog” is not all of the time the “First Mover” but sometimes winds up being the well capitalized “Fast Follower”.

Apple, for instance, has successfully followed a “Fast Follower” strategy in the past as Nokia was not only “First Mover” in smartphones but Nokia had profits and was considered a “Top Dog” right at the beginning of the smartphone era. At one point in time, people thought Nokia was “invincible” in phones. So, yeah, I am extremely reluctant to declare “invincibility” in early stage industries.

Why did I go through all of that? Well, currently Liquid Biopsy seems to be at a stage where many companies would simply be investigating what it can be used for. Many studies have not even been concluded to discover how useful Liquid Biopsy can even become. Yes, there are some preliminary studies like NILE close to conclusion but ultimately it will likely take another 5 to 10 years to get more of a true understanding of how effective Liquid Biopsy might be for doing many of the things people project for Liquid Biopsy. Who knows if one month, one year, 5 years or some indeterminable time period from now, one or more studies find problems with Liquid Biopsy that sets back many commercial applications for years?

What if the eventual “Top Dog” becomes heavily backed GRAIL (backed by Illumina, Jeff Bezos and Bill Gates), a company who seems to be using the tortoise strategy as opposed to the hare strategy?

I have invested in the medical industry enough to know that everything can be cruising along with testing indicating a promising product and all of a sudden when the final conclusion comes the final study indicates a dud: https://www.cnbc.com/2019/03/23/failed-alzheimers-trial-leav…

Woe unto those declaring victory in a clinical trial based only upon preliminary results because sometimes the final results will spring a surprise. I do not go in expecting the Liquid Biopsy industry to be all that much different from the drug discovery industry, in terms of successes and failures in determining which biomarkers to use.

I am the type of investor that looks at things with a very critical eye, so I get caught up in far fewer tulipmanias due to excessive hype than most investors. Any investors still wanting to pump Yongye https://discussion.fool.com/ggs-yongye-international-yong-119653… to gain glorious riches in heaven?

I throw huge rocks at my investments and if they survive the rocks that I throw then I invest more. By throwing rocks, I am less likely to believe puff pieces put out by reporters who major in journalism and not the industry that they cover.

Starrob

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Starrob,

I think your points are valid, but there are some nuanced points in biotech that you kind of miss.

For one, devices and testing are under far less stringent conditions than drug makers and fail much less. Take the impella, for instance, which doesn’t have great evidence to stand on but has been wildly successful:
https://www.tctmd.com/news/rct-or-not-rct-impella-debate-piv…

I think GRAIL is possible to come up,and yes they do have large trials coming out, but with the earliest estimate now 2025. And they are exploratory in nature if you look into them… But for the next 5 years, GH seems like the safest bet amongst the liquid biopsy group.

Nascent but growing industry for sure, but GH is ahead of most unless you count EXAS, which has a narrow spectrum. I’d make the case GH is not first mover, but going for biggest market and has best current long term strategy. GRAILs strategy isn’t quite abundantly clear yet. Theyd also have to demonstrate an ability to sell their product, which they haven’t quite done yet.

Again, medical devices are far easier to grow with fewer regulations than drugs. ISRG and ABMD haven’t really gone through rigorous testing, but that hasn’t stopped their growth.

Not for nothing, but I kind of stepped on two of this boards most recent biotech tulips and got taken to the cleaners for it (NKTR and NVAX). I also stepped on KITE, just happened that big pharma was the last to buy that tulip before it wilted …

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Seems to be a lot of confusion in this thread.

In my mind:

NVTA - DNA testing
ILMN - make the machines to do DNA testing
GH - liguid biopsy - that is testing a blood draw
EXAS - stool test rather then tissue biopsy

I own all 4. Tom

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