3 Best Stocks in Personalized Medicine – Madison.com

Personalized medicine, also known as precision medicine or genomic medicine, is one of the most revolutionary trends shaping the future of healthcare. What is personalized medicine? The simple definition is that it's the customization of care to an individual's genetic profile. Several publicly traded companies stand out as leaders in the field.

Exact Sciences (NASDAQ: EXAS), Illumina (NASDAQ: ILMN), and Vertex Pharmaceuticals (NASDAQ: VRTX) are pioneers in personalized medicine -- each in a different way. Here's why I think these are the three best stocks in personalized medicine right now.

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Exact Sciences markets the CologuardDNA screening test for colorectal cancer. Cologuard has enjoyed the strongest product launch of any diagnostic test ever, with more than 450,000 people screened since late 2014. But there's much more potential growth. There are around 80 million patients in the U.S. alone who need to be tested for colorectal cancer, but many don't get tested because they don't want a colonoscopy. Exact Sciences hopes to capture around 30% of that market.

Cologuard should continue to drive Exact Sciences stock higher in the near future, but over the long run there are even more opportunities. Exact Sciences is collaborating with the Mayo Clinic to develop a platform for early detection of cancer by identifying DNA methylation markers. (Addition of methyl groups to DNA changes gene expression and potentially lead to cancer.) Significant progress has already been made in what could be a huge new market for Exact Sciences.

Although Exact Sciences isn't profitable yet, it's headed in the right direction. Analysts project the company will grow earnings by an average annual rate of 68% over the next five years. That seems quite possible with Cologuard continuing to pick up momentum.

Illumina is the leader in genomic sequencing, an essential tool that makes the personalized medicine revolution possible. The company began operations in 1998 and launched its first DNA sequencing system in 2007. Since then, Illumina's technological innovations havereduced the cost of sequencing by a factor of more than 10,000 and have reduced sequencing time per gigabase by a factor of approximately 3,500.

The company is continuing its track record of innovation with its recent launch of the NovaSeq sequencing system. Illumina thinks that the NovaSeq architecture could lead to reducing the cost of human genome mapping to $100, which would open up genomic sequencing to more customers than ever before. Selling more systems would be great news for Illumina, but the added consumables revenue would be even better: The company makes around two-thirds of its total revenue from consumables sales.

As a well-established company now, Illumina might not enjoy the tremendous growth that it did in the early days of genomic sequencing. However, Wall Street analysts still estimate that Illumina will grow earnings by an average annual rate of 14% over the next several years, thanks in large part to great prospects for NovaSeq.

Vertex Pharmaceuticals is leading the way in the use of personalized medicine to fight cystic fibrosis (CF). The company won U.S. regulatory approval in 2012 for its first drug, Kalydeco, as a treatment for CF patients with theG551D mutation. Another approval came in 2014 for CF patients with one of 10 other genetic mutations.In 2015, Vertex received approval for Kalydeco in treating children ages two to five with specific gene mutations that cause CF.

While Kalydeco has been successful, Vertex's biggest opportunities lie with other CF drugs. Vertex is still finalizing reimbursement arrangements in several European nations for Orkambi, but Orkambi has already become the company's top-selling product. Even greater prospects could be in store for a combination of Kalydeco and tezacaftor, for which Vertex plans to file for approval in the third quarter of 2017.

Analysts think that Vertex can grow its earnings by nearly 65% annually over the next five years. Although the stock looks expensive right now with shares trading at 39 times expected earnings, Vertex remains a good pick for investors with that kind of growth potential.

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Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Illumina. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

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3 Best Stocks in Personalized Medicine - Madison.com