A New Realm Of Therapeutics Is Emerging: Johnson & Johnson And Novartis Are Key Players

| About: Johnson & (JNJ)

Summary

Johnson & Johnson and Novartis are at the forefront of the National Microbiome Initiative (NMI).

There is long-term potential for the discovery of a new branch of novel therapeutics.

Partnerships with the Federal Government, academia, and early-stage biotechs serve to strengthen the role of these companies in this new exciting research initiative.

Current speculation as to the future size of this emerging market may be very conservative, and the overall potential is enormous.

Johnson & Johnson has a healthier balance sheet than Novartis and likely carries less risk as an investment.

This past Friday, the White House Office of Science and Technology Policy (OSTP) made a very exciting announcement. The National Microbiome Initiative (NMI) has officially been launched, and with it comes the potential for some incredibly exciting scientific discoveries and insights into how we, and our world, interact with the world of microbes. Now, I understand that this may not seem exciting at first. After all, most people think of microbes as just germs and bugs that live on things and sometimes cause disease. This is partly true. Yes, they are. However, I assure you that they are so much more than that, so much more important than that, and with this new initiative comes the potential for novel therapeutics and diagnostics as well as intriguing investment opportunities.

A microbiome is a community of trillions of microscopic organisms that live both on and within humans, animals, plants and a variety of other environments. Often, the function of microbiomes is one of symbiosis. That is, these microbial communities positively benefit from and contribute to their environment. You may have heard of beneficial microbes that live in and on our bodies, and particularly those microbes that dwell in our gut. I think it's safe to say that most people have heard of prebiotics and probiotics, which theoretically serve to balance or enhance the benefit of these microbes in our digestive systems. However, what is less well known is how truly important our relationship with our microbiome is. Our bodies are host to around 100 trillion microbes that dwell in our gut, on our skin, and on mucosal surfaces, and together they constitute a staggering 1-3% of our total body mass. In fact, the cells of our microbiome actually outnumber our own cells by 10-fold. Research indicates that the human microbiome plays a crucial role in our overall health and well-being. The microbes that share our bodies are involved in many aspects of our health including our ability to digest food and the functioning of our immune system. We affect the state of our microbiome, and in turn our microbiome affects us. A shift in the balance of "good" and "bad" microbes, or dysbiosis, can have profound health consequences. Studies suggest that the state of one's microbiome can play a role in chronic ailments such as digestive disorders, diabetes, obesity, cardiovascular disease and even psychological health.

The NMI comes forth following years of scientific research into the human microbiome conducted by a wide array of institutions. In 2012, The Human Microbiome Project generated a wealth of data and insight into the types of microbial species that inhabit us. However, the fact remains that science still knows surprisingly little regarding the ways our microbiome impacts our overall health and contributes to disease.

The $121 million NMI is pouring money into this research over the course of the next two years with the goal of expanding the science to the point where life-altering therapies and diagnostics become a reality in the not-too-distant future. Private investors are also contributing to the tune of $400 million over the next several years, $100 million of which will come from the Bill and Melinda Gates Foundation. A major avenue of research being pursued in terms of therapeutics involves using microbes themselves as drugs to optimize or recreate beneficial microbiomes. Some think this approach could potentially be much safer and may carry fewer side effects than traditional pharmaceutical compounds. Another avenue of research is to explore drug compounds that could potentially have the same effect. As a whole, the microbiome therapeutics market is in its infancy. Currently there are no FDA approved drugs on the market, and there is only one approved microbiome-related therapy, known as Fecal Microbial Transplantation (FMT), that is used for treating Clostridium difficile infection. According to a report by market research firm MarketsandMarkets, the emerging microbiome market is expected to be worth $658 million by 2023, up from 2019 expectations of $294 million factoring in a forecasted compound annual growth rate (CAGR) of 22.3%. Another firm, Research and Markets, projects the market for microbiome therapeutics will growth at an annual rate of 73% from 2015 to 2030.

Johnson & Johnson's (NYSE:JNJ) Janssen Human Microbiome Institute (JHMI) is investing heavily in novel microbiome therapeutics and diagnostics. In 2015, they announced a licensing agreement with Vedanta Biosciences for one of the company's lead microbiome pharmaceutical candidates for inflammatory bowel disease (IBS), VE-202, which they hope to move into the clinic in the near future. Novartis (NYSE:NVS) has partnered with MIT, Harvard, and the University of California, San Francisco in a four-year $8.1 million effort aimed at developing cutting-edge microbiome therapeutics using a synthetic biology approach as well as bioinformatics to mine the vast quantity of genetic data being amassed on microbiomes.

These two companies are not the only players in this space. There are a handful of small clinical stage biotechs such as MicroBiome Therapeutics, Rebiotix, and Seres Therepeutics (NASDAQ:MCRB) that are working on developing microbiome therapies for a variety of indications. However, Johnson & Johnson and Novartis, with current market capitalizations of ~$315 billion and ~$180 billion and revenues of ~$70 billion and ~$50 billion respectively, are both industry behemoths with a proven track record of bringing valuable therapies to market. For investors with a long-term horizon looking for companies with the ability to usher in a new realm of therapeutics, these two companies provide strong plays on the emerging field of microbiome-related therapies.

At this point in the game it's difficult to say which company provides the better investment opportunity. As of the most recent quarter, Johnson & Johnson and Novartis have current ratios of 2.83 and 0.83, and debt-to-equity ratios of 32.4% and 39.1%, respectively. Based on these metrics it's clear that Johnson & Johnson has the healthier balance sheet and likely carries less risk as an investment, however both companies stand to profit greatly from the emerging field of microbiome therapeutics if things go right. Given the fact that diabetes, which affects over 300 million people worldwide, is just one of the many indications that potentially stands to be addressed by microbiome therapeutics, it's quite possible that some current estimates as to the future size of this emerging market are very conservative. Microbiome therapeutics and diagnostics could very well end up being a future multi-billion dollar market. With biomedical science advancing at an exponential rate, I don't think it's a stretch to speculate that both companies potentially stand to see low-to-mid single digit percentage top-line growth over the course of the next decade and beyond from this one emerging field alone.

Now, it's important to understand that while the science of manipulating the human microbiome may seem relatively easy to grasp on the surface, the process of drug discovery in this field is vastly complex. It includes analyzing genomic data from thousands of microbial species, mapping the intricate network of biochemical interactions that occur within these microbial communities, and then elucidating the details of how these microbes affect human health and disease. Microbiome therapies will take time to come to market, but the potential that lies in the number of indications that stand to be addressed is enormous. Only time will tell what knowledge may be obtained, what insights may be gleaned,and what therapeutics may be discovered from an initiative such as this. Previous and current initiatives in disease research have greatly accelerated progress in fields such as HIV and cancer therapeutics and diagnostics. For investors willing to make a long-term investment, the potential rewards from this emerging realm of therapeutics could be substantial. When there is a way to invest in novel cutting-edge, potentially life-changing research like this, I seek to find it and I want in.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.