How to Profit From Personalized Medicine

Nearly investor has heard about the patent cliff facing the major pharmaceutical companies. But there is another, quiet revolution occurring in the pharmaceutical sector right which very well may change its current business model drastically. That revolution is 'personalized medicine'.

Personalized medicine is the result of advances in genetics and molecular biology. While still in its early stages, it promises improvements in patients' treatment while at the same time reducing healthcare expenditures. It does so through molecular biology and the use of diagnostic tools, which is pivotal to determine whether an individual patient will benefit from a particular drug used to treat a specific disease such as cancer.

A recent advance in personalized medicine happened when the U.S. Food and Drug Administration approved a test called Therascreen from Qiagen NV (Nasdaq: QGEN) that will be used in conjunction with the drug Erbitux (used for colorectal cancer) that is owned by Eli Lilly (NYSE: LLY) and Bristol-Myers Squibb (NYSE: BMY). The test will allow the two companies to identify the 60 percent of patients who do not have a mutation in the KRAS gene and will benefit from the drug, thus avoiding giving the drug to patients who do have the mutation and will not benefit.

Based on history, this should be a big boost for sales of Erbitux. AstraZeneca's lung cancer drug Iressa, launched in 2002, had little success because of its high failure rate. But after a diagnostic test was developed in 2009, sales began to grow as the 10 percent of patients (with an EGFR mutation) helped by the drug were identified.

The okay for Therascreen is a milestone since the FDA has only approved a handful of drugs with companion tests over the past decade. Perhaps best known is Herceptin from Roche ADR (NASDAQOTH: RHHBY), which is given to the quarter of women with breast cancer that have a so-called over-expression of the Her2 gene. The diagnostic test is a joint venture of Genentech, now owned by Roche, and the Danish diagnostics company Dako which is now owned by Agilent Technologies (NYSE: A). Agilent bought Dako in June for $2.2 billion in cash from the Swedish private equity firm EQT.

The recent FDA approval underscores the growing importance of 'companion diagnostics' – used to analyze a patient's genetics – to determine whether that patient will benefit from a specific drug. This may change pharmaceutical companies entire business model to include companion diagnostics with all of their major drugs on the market. For example, Roche says that 60 percent of the drugs in its current pipeline are linked to a companion diagnostic.

Think about it...in the future, such diagnostic testing will nearly eliminate failure of drugs to work in certain patients and those costly side effects will be avoided because drugs will only be given to patients where the genetics have been determined to be compatible with the drug.

Even though some drug companies are keeping the companion diagnostics in house, the advancement of personalized medicine is potentially great news for companies in the diagnostics business such as Agilent Technologies, which is expanding its life sciences business into a fourth division at the firm, and Qiagen, which already manufactures 30 companion diagnostic tests.

Double-digit growth is forecast for this sector through 2015 and beyond, pushed along by a number of factors including treatment cost savings, optimization of therapies and drug safety. Personalized medicines for cancer are already dominating the market, accounting for more than half of all the personalized medicines currently. But with personalized medicines quickly expanding into other areas such as HIV as well as cardiovascular and neurological disorders, investors in the healthcare sector would do well by keeping stocks like Qiagen and Agilent on their radar screens.
 
This article was originally written for the Motley Fool Blog Network. Make sure to read my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.

ASML and the Next Generation of Chips

One of the companies that is often pointed to in the technology sector as a bellwether as the world's top chip equipment maker is the Dutch company, ASML Holding NV ADR (Nasdaq: ASML). It not long ago gave a rather upbeat forward assessment of its business (thanks to smartphones and tablets) and now more good news is flowing for ASML shareholders.

The world's biggest semiconductor manufacturer Intel (Nasdaq: INTC), and one of ASML's largest customers, agreed to invest $4.1 billion into the company. Intel is putting $1 billion towards ASML's research and development costs as well as buying a 15 percent stake in the company for $3.1 billion.

Intel's major investment into ASML may soon be followed up by other sizable investments from other of the company's major customers. These customers include Taiwan Semiconductor Manufacturing ADR (NYSE: TSM) and Korea's Samsung Electronics Co. Ltd. (NASDAQOTH: SSNLF.PK). It has been reported that ASML has asked its three biggest customers, accounting for 41 percent of its revenues, to help fund its R&D in exchange for up to 25 percent of the company.

Why would these three semiconductor companies be so anxious to help out ASML? Because they are very concerned about maintaining the progress in chip miniaturization over the coming years.

In particular, the money from Intel, Samsung and TSM will help ASML accelerate the development of the next step beyond laser technology, extreme-ultraviolet (EUV) lithography. This is a new process that is seen as key to producing smaller chips. It requires a vacuum inside the machine and mirrors instead of lenses to focus the light on the silicon. ASML is seen as the leader in the field and it believes that the new technology will be able to be used for mass production of chips below 20 nanometers beginning in early 2013. The research money should allow it to break the 10 nanometer barrier later this decade.

In addition, the money injections will be used to help with the development of equipment that can handle larger-sized circular wafers from which chips are cut. The next generation 450 millimeter diameter wafers will contain roughly double the amount of chips as existing 300 millimeter wafers. Development of this technology should result in cost savings for chip makers of 30-40 percent.

From ASML's viewpoint, these investments will be key to it remaining number one in semiconductor equipment and ahead of its Japanese rival Nikon Corporation ADR (NASDAQOTH: NINOY.PK). That company is also working on EUV lithography technology and has ASML a bit worried. But the good news here is that it is believed Nikon is at least two years behind ASML in developing EUV technology with its version of EUV technology not coming onstream until at least 2015. And this cash injection by Intel and the other major chip makers into ASML is sure to put Nikon even more behind the proverbial eight ball.

This development and advancement in chip manufacturing technology bodes well long-term for users of tech gadgets such as smartphones and tablets too since production costs for such gadgets will be much lower. Nomura's global technology specialist, Richard Windsor, even told Reuters that “We're talking about $50 tablets”.

But the real winner here is ASML and its shareholders as it has basically cemented its place as the number one semiconductor equipment for the next decade.

This article was originally written for the Motley Fool Blog Network. Don't miss my daily articles for the Motley Fool at http://blogs.foool.com/tdalmoe/.

Apple-Google Struggle Moves to Maps

The struggle at the top of the technology food chain between tech titans Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) continues. Now the growing conflict has even spread to the world to smartphone map applications with the unveiling last month of a home grown Maps application from Apple. This is a straight on in-your-face effort to beat Google on its own home turf.

This move in essence ousted the Google Maps app that had come preloaded on the iPhone since its launch in 2007. Apple's version of Maps will come with local reviews from Yelp, 3D images of cities and turn-by-turn navigation.

What is interesting here is that this struggle over smartphone map apps is extending half way around the world to China. Here, of course, only Chinese companies are licensed to collect map survey data. So both Google and Apple have to work with local partners.

The two big players in this field in China are AutoNavi Holdings Limited (Nasdaq: AMAP) and NavInfo. Shenzhen-listed NavInfo works with major companies in China including Samsung,Nokia, Motorola and Baidu, but it is AutoNavi which has landed the really big fish in China. Apple recently selected AutoNavi as its partner for maps on its future versions of the iPhone and iPad in China. This is an intriguing choice since AutoNavi is already the partner for Google in China and has been since 2006.

This recent decision by Apple may change the battle for market share in China between AutoNavi and NavInfo in AutoNavi's favor. The latest data showed that AutoNavi had 52 million users for its mobile maps app at end of March 2012 while NavInfo had their maps app installed on more than 37 million handsets at the end of 2011.

Both companies started out with car navigation products. The main difference today is that AutoNavi is diversifying more quickly into technology for consumer devices more quickly than NavInfo which continues to be mainly focused on its auto division. This makes some sense since some of its mobile partners like Nokia are not doing so well.

NavInfo and Toyoya Motor ADR (NYSE: TM) recently formed a joint venture in China for the distribution of map data to car navigation systems in China and is scheduled to start services in 2013. Toyota will have a 39 percent stake in the venture. The joint venture combines Toyota's telematics technology with NavInfo's map production and management technology. Toyota and NavInfo's parent have cooperated on map data creation for car navigation systems since 1996.

Apple's move away from Google maps in China will hurt Google's mobile advertising sales. About a third of Google map users in China access the service via an iPhone, says Analysys International. This is important because mobile e-business in China is a growth industry. Mobile e-commerce is expected to generate $48 billion of transactions annually by 2015 in China, growing 26 times from 2011 levels. Mobile marketing itself will jump 10-fold by 2015 to about $3.85 billion. All of these figures come from iResearch.

What is important here is that for both mobile marketing and mobile e-commerce, about 20 percent of all transactions will rely on location-based technology like maps,matching merchants with consumers based on their specific location. Apple's move away from Google Maps in the burgeoning consumer market of China will obviously hurt Google.

The Chinese maps app battle looks to be just the latest conflict between the two giants. And it's one that Apple appears to be be winning for now. But the war between the two is far from over.

This article was originally written for then Motley Fool Blog Network. Make sure to read my daily market articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.