By Jen Wieczner

Now that scientists have revealed that the huge swaths of genetic code once dismissed as junk DNA are not so worthless, investors may wonder if theres similar hidden value in the biotech sector. The short answer: maybe.

Though analysts say its too soon to tell what impact the discovery will have on stocks, the recent breakthrough may eventually lead to new techniques for the early detection of diseases and to the development of new drugs. And that could be a boon to firms at the forefront of biotechnology and molecular diagnostics.

Even before the findings from the project known as Encode emerged, the biotechnology sector was already on the cutting edge, at least in terms of market performance: The iShares Nasdaq Biotechnology Index ETF /quotes/zigman/85342/quotes/nls/ibb IBB -0.0072% is up more than 47% over the past 12 months, with double the returns of the broader S&P Healthcare Index. But this latest discovery suggests there could be even more promising returns ahead. The new understanding of junk DNA may help science-driven pharmaceutical companies figure out which genetic proteins can be treated with drugs, lead diagnostics companies to which genetic variations are red flags for certain diseases and help other firms evaluate the effectiveness of their treatments, says Dr. Thomas Gingeras, the head of functional genomics at Cold Spring Harbor Laboratory and one of the principal investigators for the Encode project.

This junk DNA is just another layer of complexity, but it also brings us a little bit closer to having a more full set of therapies that we can bring to patients, says Karen Andersen, a Morningstar biotechnology analyst.

It wouldnt be the first time that what scientists once considered genetic trash turned into corporate treasure. Regulus Therapeutics, a joint venture between drug companies Alnylam Pharmaceuticals /quotes/zigman/92224/quotes/nls/alny ALNY +5.00% and Isis Pharmaceuticals /quotes/zigman/74162/quotes/nls/isis ISIS +0.34% that last month began SEC proceedings to go public, focuses entirely on treating diseases through microRNAbut a decade ago, that part of the genome was also considered junk. (Regulus declined to comment.)

The new research may also bring business to Alnylam, which uses a technique known as RNA Interference to basically turn off disease-causing genes; the data could help the company identify new disease markers for which it could develop therapies, says Barry Greene, Alnylams chief operating officer. It opens up a world of biologic insight that will be helpful, says Greene. While it may take a while for companies to apply the results, the research is a step forward that might eventually lead to companies like Regulus being formed to pursue new genetic therapies: Weve never written aspects of the genome off, Greene says.

The new insight may also have positive implications for molecular diagnostics companies that are already using genomic information to test for diseases, such as Myriad Genetics /quotes/zigman/58124/quotes/nls/mygn MYGN +0.86% , which makes tests for evaluating how likely a person is to develop various types of cancer. Knowing more about the junk DNA might help the company develop more sophisticated tests to detect a disease even before it forms, says Andersen. Myriad declined to comment.

Pharmaceutical companies are also increasingly interested in harnessing our genes to create better drugs and to assess whether those drugs will work for a patient or cause side effects. A large part of the strategy at Roche /quotes/zigman/137625/quotes/nls/rhhby RHHBY -0.68% , for example, is genetic research, which the company uses to create diagnostic tests to go along with each of its drugs, in an effort to deliver more personalized health care. Sixty percent of the drugs in the firms pipeline are now paired with a test, including treatments it is developing for schizophrenia and Alzheimers disease. Roche was not available to comment before press time.

Another type of genetic science known as epigeneticswhich relates to how a gene is expressedis becoming popular with pharmaceutical companies, who are using the concept to create new drugs that can virtually alter a persons genetic instructions, says Andersen. Celgene /quotes/zigman/69584/quotes/nls/celg CELG +0.50% , for one, racked up about $700 million last year in sales of its drug Vidaza, which treats some forms of anemia and leukemia by helping bone marrow produce normal blood cells instead of unhealthy ones.

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Investing in ‘junk DNA’