Stocks & Markets December 27, 2009, 11:18PM EST

Life Science Stocks: A Growing Market in 2010

Genetic research projects for personalized medicine are drawing $10 billion in government stimulus funds. Nonmedical applications are promising, too

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It took more than four years, a double mastectomy, and multiple other surgeries—as well as radiation treatments and bad reactions to ineffective chemotherapy drugs—before Christine Hanson's breast cancer was brought under control by Dr. Mark Fesen in Hutchinson, Kan. By then, cancer had spread to her lungs, liver, and brain.

Through a port implanted in her chest nearly five years ago to reduce stress on her veins, Hanson, the mother of three children not yet in high school, has been getting weekly infusions of cancer-treatment drugs Avastin and Abraxane, which have put her cancer into remission. What if doctors had a detailed road map of the kinds of drugs and therapies that Hanson's genetic makeup makes her most receptive to, instead of having to arrive at treatments through the costly—and sometimes painful—method of trial and error?

That's the promise of the nascent field of personalized medicine, where treatment is prescribed based on an understanding how an individual's body is genetically predisposed to welcome or resist certain compounds. The day when customized treatment is widely available may soon be within reach, thanks to technological advances being made by life science tools companies. They develop and market protein-separation devices and other instruments that will eventually provide researchers with the knowledge needed to precisely target the best treatment for life-threatening illnesses.

After bureaucratic delays this year that frustrated investors, the awarding of $10 billion to the National Institutes of Health under the Obama Administration's stimulus program over the next two years is likely to give a big boost to life science companies' earnings as the money funds a fresh wave of research.

Genome Sequencing for $1,000 or less

It's been less than seven years since completion of the momentous Human Genome Project, which took 13 years and an estimated $3.8 billion to map humanity's genetic material. Sequencing an individual's DNA currently costs about $50,000 and there's a road map to get it down to $1,000 within three to five years, say equity analysts who cover the industry.

At $1,000, it would still be more expensive than the average home computer, but that's the price point below which personalized medicine is considered far more economically viable. The lower the cost of genomic sequencing, the greater the shift analysts expect to see in the allocation of research funds toward the consumer market, says Timothy McCandless, an analyst at Bel Air Investment Advisors in Los Angeles. The dramatic drop in costs over the past five years has already sparked demand for applications in other areas such as agriculture, where genetic information can be used to breed more drought- and pest-resistant crops and livestock prized for certain types of meat. The push toward biofuels also makes the technology relevant for energy applications.

Drug companies have been reluctant to embrace personalized medicine because it's easier to sell a less-targeted drug to a broader population than to market more narrowly applied drugs to smaller populations.

When Merck (MRK) voluntarily pulled its blockbuster arthritis drug Vioxx from the market in 2004 in the face of mounting evidence of side effects such as heart attacks, it served as a catalyst to get other pharmaceutical manufacturers and the U.S. Food & Drug Administration (FDA) to think more seriously about the viability of personalized medicine, says McCandless.

To be clear, several years of increasingly fine-tuned diagnostic and clinical research will be needed before personalized medicine are available to the extent that it might quickly identify the optimal treatment for Christine Hanson's breast cancer. The process remains in a stage akin to batting practice before an actual baseball game, says Jonathan Groberg, an analyst at Macquarie Research Equities.