This is a relatively unusual quiet period in medical technology, as there are so few emerging sectors that are really capturing attention and drawing high stock multiples. One of the areas that still is drawing attention, however, is molecular diagnostics. A subset of the lucrative multi-billion dollar diagnostics market, molecular diagnostics focuses on the use of modern life sciences technology to use genomic and/or proteomic expression information to diagnose or predict disease. (Find an investment that will give your portfolio a shot in the arm. To learn more, check out A Checklist For Successful Medical Technology Investment.)
IN PICTURES: World's Greatest Investors

Molecular diagnostics (often abbreviated as MDx) has garnered a lot of hope, enthusiasm, and more recently, disappointment. Although many of the leaders in this space are some of the large companies investors might expect (Roche (Nasdaq:RHHBY), et al), there are several small companies that could give risk-seeking investors an interesting play on the space.

Once a key player in the race to sequence the human genome, Celera (NYSE:CRA) has since refocused on clinical lab services and tests. Celera has chosen to focus especially upon cardiovascular disease, with the idea of developing and administering tests that can use certain genetic markers to predict above-average risk factors for disease and severe consequences like heart attack and stroke. Celera has a relationship with Abbott Labs (NYSE:ABT). While cardiac testing could be more than a $1 billion market, Celera likely needs to show some solid growth to get institutional investors interested.

Exact Sciences
For all intents and purposes, Exact Sciences (Nasdaq:EXAS) might as well be a biotech. The company is still in development for what should be its key near-term product - a non-invasive colorectal cancer screen test. Early study results have been very encouraging, and this technology is another billion-dollar plus potential product if real-life clinical trials can replicate the earlier proof-of-concept studies. With the company unlikely to file its PMA with the FDA until the second half of 2012, investors will have to be patient with this idea.

Genomic Health
Genomic Health (Nasdaq:GHDX) is perhaps less risky than other names on this list from the perspective of product development (as it has successful products on the market), but analyst enthusiasm is decidedly muted on this name. Not only is Wall Street worried about the ongoing acceptance of the company's Oncotype Dx tests for breast and colon cancer, but there are a lot of uncertainties concerning the FDA treatment of genetic tests and the patents that protect them. This may be a case of undue concern, though, as the algorithms that power the tests are almost certainly patentable and defensible and the clinical worth of the tests does not seem to be in serious doubt. Longer term, then, the company could build on its foothold in breast and colon cancer with addition tests for other cancer types like melanoma.

Nanosphere (Nasdaq:NSPH) is a tiny company, and one that has been beset with some filing and development delays. Still, the company's Verigene system could eventually make the company a significant player in on-site MDx testing. The Verigene uses gold nanoparticles to detect genetic and protein markers and has shown high levels of sensitivity. The company has some promising tests in the pipeline, including a troponin test, cancer tests and improved flu/respiratory virus panel test, but also a lot of competition.

Although none of the stocks on this list have had an easy time, Sequenom (Nasdaq:SQNM) has had a much tougher go. The company was hit hard by the revelation that employees had mishandled and misrepresented data on the company's key Trisomy 21 (down syndrome) pre-natal test. The company took its lumps and has continued to develop the technology. Data should be coming out relatively soon from an internal validation study of clinical samples and positive results here should lead to larger pivotal studies. The opportunity for a non-invasive pre-natal Trisomy 21 test could exceed $1 billion, and although a PMA filing is not likely until 2012, a lab-derived test could be on the market before the end of 2011.

The Bottom Line
These are just a handful of ideas, and only a starting point for the thorough due diligence that a prospective investor needs to perform before buying into any of these ideas. Of course, other ideas like Luminex (Nasdaq:LMNX) and Cepheid (Nasdaq:CPHD) are certainly worth investigating as well. The field of molecular diagnostics is crowded, but the future looks promising. These are all risky plays and success is far from certain, but investors looking for some potentially under-appreciated names could certainly start here.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  2. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  3. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  4. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  5. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  6. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  7. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  8. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  9. Mutual Funds & ETFs

    Using Short ETFs to Battle a Down Market

    Instead of selling your stocks to get gains, consider a short selling strategy, specifically one that uses short ETFs that help manage the risk.
  10. Investing Basics

    How to Diversify with International Stocks

    Diversifying with international stocks can benefit most portfolios, but beware of country risk.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!