Daniel Koller (pictured) is head portfolio manager at BB Biotech.
Over the past three decades, the biotech industry has witnessed remarkable growth and advances in drug development.
While 30-years ago biotechnology was a very young industry with a few dominant players such as Genentech, Amgen and Biogen, there is now a broad mix of large companies, start-ups and smaller providers with research and development candidates.
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Then, as now, the US had the largest number of investable listed and private biotech companies and remains by far the most developed market for biotech investments today.
Listed biotech companies in US and Europe today achieve revenues of over $200bn, which corresponds to a tenfold increase since 2000.
The annual number of drug approvals in the US has been growing significantly over the last ten years, and biotech companies are responsible for a larger part of the total drug sales.
Breakthroughs in disease management, such as Vertex Pharmaceuticals' success in treating cystic fibrosis and Gilead Sciences' revolutionary cure for hepatitis C, highlight the sector's immense impact.
These milestones paved the way for a shift in focus towards addressing critical health concerns.
Investment opportunities for the next 30-years
In the coming years, there will be several interesting areas of development.
Cancer research continues to be a major focus, with relentless efforts to enhance the efficacy and safety of treatments.
Neurology, especially in the realm of dementia, commands significant investment, mirroring the growing societal concern for age-related cognitive diseases.
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Autoimmune diseases and cardiovascular issues, including the burgeoning problem of obesity, are also focal points set to witness substantial growth.
Anticipated approvals like the first gene scissor-based product from Crispr/Vertex, already approved in the UK, signal a new era in genetic therapies.
Moreover, the recent success of Covid-19 vaccines from Moderna and Pfizer/BioNTech underscores the untapped potential of mRNA technology, promising future breakthroughs in infectious diseases, cardiovascular ailments, metabolic disorders, and cancer.
Valuations: Current situation and future predictions
Rising interest rates and inflation have affected the biotech sector, particularly smaller and mid-cap companies, leading to historically low valuations.
Factors such as potential regulatory changes in the US, and a weak M&A market have further impacted stock prices.
However, among these challenges, there remains huge potential for investors in the sector, owing to fundamental advancements coupled with attractive valuations.
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While large corporations have remained relatively stable, medium-sized companies have recorded larger share price declines in recent years.
The valuations of smaller companies are at, or even below, the level of their cash reserves.
In addition, the momentum of takeovers appears to be increasing.
Pharma is facing massive patent cliffs, so takeovers and strategic partnerships are likely to accelerate.
Although the timing and catalyst of any eventual stock market rebound for the sector ultimately depends on the macroeconomic environment, the starting position is extremely promising and should ensure rising share prices.
The AI revolution in biotech: Unveiling promising prospects
Artificial intelligence and machine learning are likely to transform drug discovery and development.
These technologies expedite molecular target identification, streamline clinical trial designs, and significantly mitigate failure risks.
Biotech companies, using AI-driven approaches predominantly in neurology and cancer research, have demonstrated potential in reducing clinical trial costs and expediting drug candidate assessments.
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As AI-based drug candidates move through clinical phases, promising developments surface.
Companies like Relay Therapeutics and Black Diamond Therapeutics are working with AI in cancer drug development and their successful clinical data exemplify the transformative potential of AI in revolutionising treatment modalities.
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The recent approval of GLP-1 drugs for obesity also marks a pivotal moment.
Novo Nordisk and Eli Lilly lead this transformative market, where we can expect to see increased participation from other players in the near future.
This development is not limited to obesity treatment; it extends to preventing and managing secondary conditions like cardiovascular diseases, diabetes, and fatty liver disease.
Navigating Biotech's Future
The biotech sector looks promising, with further breakthroughs in clinical research and the use of cutting-edge AI technologies are likely to prove to be important drivers.
From a macroeconomic perspective, the stabilisation of interest rates could also lead to better times ahead for the biotech sector.
Daniel Koller is head portfolio manager at BB Biotech
