What the Bioeconomy Means for Investors
Maxxwell A.R. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On April 1, the White House released the National Bioeconomy Blueprint (opens PDF) that outlined the importance of transitioning health/life science, chemical production, agriculture, and other industries into the 21st century. Yes, it was April Fool’s Day. No, the White House wasn’t joking.
Despite being lost in the midst of an election year the message was clear: an American bioeconomy can transform the world. The report claims that “U.S. revenues in 2010 from genetically modified crops were approximately $76 billion” and “2010 U.S. revenues from industrial biotechnology—fuels, materials, chemicals, and industrial enzymes derived from genetically modified systems—were approximately $100 billion.” It goes without saying that the emergence of the bioeconomy represents a huge opportunity for investors. Let’s briefly break down each industry.
Simply treating diseases is so 20th century. Now all of the cool kids are digging into preventive screening and personalized medicine. Myriad Genetics (NASDAQ: MYGN) has pioneered several highly-profitable, industry-leading genetic screening tests for several types of cancers. The company’s business model was built on asking the simple question: “Why wait for a disease to take root in your body if there are tell-tale signs of susceptibility years in advance?” The sooner you catch cancer, the easier it is to treat. Myriad will be a mainstay in the industry as long as that holds true.
The Human Genome Project cost the U.S. government roughly $3 billion; not to mention a $300 million private effort from J. Craig Venter. Today, the entire human genome can be sequenced for just $1,000 (and falling). As fellow Fool Alex Panes wrote back in October, Life Technologies (NASDAQ: LIFE) is well ahead of the human genome sequencing pack. If the opportunity to peek inside of your DNA costs less than an iPhone, wouldn’t you be curious enough to take it? The market could be enormous and could forever change the way we look at medicine.
To base the future of the sustainable chemicals segment of the bioeconomy on the current state of the handful of public companies is a bit like orbiting the Earth and claiming to have traveled throughout space. Wrap you mind around the Biofuels Digest 150 Hottest Companies in Bioenergy to grasp just how many players exist (most of which are not public). The National Bioeconomy Blueprint estimates that nearly $375 billion of the chemical, plastic, and rubber markets are within disruptive reach of these companies within the next decade. That doesn’t include fuels, health sciences, or materials that companies such as Solazyme (NASDAQ: SZYM) and Amyris (NASDAQ: AMRS) are targeting with renewable oils and their derivatives.
Seed giant Monsanto (NYSE: MON) has already given long-term investors massive returns of more than 1,000% since 2002 (not including dividends). Perhaps the company, which has become an integral part of 21st century farming, is an example of what awaits investors in the currently beaten down sustainable chemicals industry. The potential and disruptive power is certainly there.
I will caution investors against putting money into Monsanto’s baby brother Ceres (NASDAQ: CERE), which develops high energy density crops. The company has a bright future, dozens of partners, industry-leading IP (110 patents + 220 patents pending), and decent management. Unfortunately, not every good company makes a good investment. Look at the chart below and tell me you wouldn’t rather see some steady progress before investing:
Source: Google Finance
Foolish bottom line
The highly-publicized failure of Solyndra gave critics of government-aided greentech companies plenty of firepower. Not surprisingly, those critics will be the last to point out that fossil fuels received $523 billion in worldwide subsidies in 2011 – much more than the $88 billion granted to renewable technologies. I believe the U.S. government is doing the right thing by fostering what is already becoming a world-changing industry. There will undoubtedly be companies that fail, but the ones that succeed with far outshine them.
Follow me on Twitter to keep up with my future posts on energy, sustainable chemicals, and undervalued growth companies @BlacknGoldFool.
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BlacknGold has no positions in the stocks mentioned above. The Motley Fool owns shares of Solazyme. Motley Fool newsletter services recommend Monsanto Company and Myriad Genetics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!