Why is biotech the next global boom?

Biotech

David Greene, Director of Business Development, Capital Access for The iQ Group Global discusses how the industry is diverse and rapidly expanding, resulting in multiple opportunities for biotech investing.

On the most fundamental level, biotechnology is defined as any product or technology developed using cellular and biomolecular processes[1]. In today’s world biotechnology has expanded substantially, and those involved in it are making significant strides towards solving some of the world’s greatest problems as a result of a growing and aging population. From increasing agricultural efficiency in order to feed the world’s hungry to developing biofuels to reduce the energy required for manufacturing. The majority of biotech companies though are engaged in the long-term research and development of innovative medicines and medical devices. The industry is diverse and rapidly expanding, resulting in multiple opportunities for biotech investing.

Preventing, fighting and curing disease

The biotech industry is most broadly recognised for advancements and innovations to healthcare. Biotech advances have the potential to extend and save lives through the early detection of diseases, the development of preventative medications and the treatment of serious, life-threatening illnesses.

According to US based Grand View Research Inc, the global biotechnology market is expected to reach USD 727.1 billion in sales with the emergence of key themes including regenerative medicine and genetics in diagnostics [2].

In 2015, according to an industry report, innovations from biotech companies comprised seven of the top 10 drugs in global sales[3].

According to the industry report Healing, Fueling, Feeding: How Biotechnology Is Enriching Your Life, the US spends approximately U$2 billion annually treating cervical cancer[4]. At the time of compilation, the report estimated that a coordinated national vaccination campaign promoting the vaccines Gardasil® (Merck & Co.) and Cervarix® (GlaxoSmithKline) could save – in addition to thousands of lives – the healthcare system up to U$1.4 billion per year[5].

Feeding and fueling the future

All that said, healthcare isn’t the only sector that benefits from investment in the biotech industry. In fact, it’s helping farmers from all over the world become more efficient. For example, agricultural biotech helps farmers grow crops with fewer inputs, less chemicals and increased nutritional profiles. According to the Healing, Fueling, Feeding report, there was a 25-fold increase in the number of acres being farmed with biotech crops grown in 25 countries by 14 million individual farmers between 1996 and 2000. By 2009, this number increased to 330 million acres[6].

Biotech can also increase efficiency in manufacturing by halving the energy required in certain manufacturing processes and decreasing the steps involved in creating particular chemicals by up to 80 percent. These innovations will decrease dependence on fossil fuels by making a sustainable, bio-based economy a viable alternative.

What about the Australian biotech landscape?

No different from the rest of the developed world, the Australian population is ageing rapidly and longer life expectancy has brought a greater incidence of age-related illnesses such as Alzheimer’s disease, cancers, heart disease and diabetes. Biotech companies are developing new specialist therapies and boutique drugs in unmet areas as they seek to meet the demand for age-related diseases. Similarly, the rise of lifestyle diseases associated with obesity and stress has also created the need for new medicines. Ongoing technological developments are also driving demand for new biotech products, with converging technologies stimulating novel approaches to the discovery, design and production of biotech products.

So what does this mean for Australia? Are we too far removed from the big players like the US and Europe? The APAC market is anticipated to grow at the most lucrative pace due to changing health care infrastructure in the region which supports and drives demand for biotech products[7]. How can we leverage the potential commercial reality resulting from an impending biotechnology explosion?

Reason 1

Its fair to say that the end of the resources boom and the decline of traditional manufacturing has left Australia in a precarious economic position. Although our banking and professional services sectors are still tracking strongly, economic growth in other industries has been weak or negative.

Biotech’s domestic value-add (the measure of the industry’s contribution to the economy) is expected to grow by 2.6% annualized over the 10 years through 2022-23, slightly above the expected annualized GDP growth of 2.5% over the same period[8]. This forecast suggests the industry is outperforming the wider economy.

Reason 2

Australia is also a highly attractive environment for R&D operations, with a potential cash refundable tax credit of up to 43.5% of eligible R&D expenses[9]. The Government has a strong history of investment to support the infrastructure needed for a world-class healthcare industry. It has established a new Future Industries Fund targeting medical technologies and pharmaceuticals as one of several strategic priority sectors.

Reason 3

Demand is growing for products commercialised from biotechnology research. Rising incomes and wealth, and an ageing population will promote demand for biopharmaceuticals to improve quality of life, combat ailments associated with old age and extend life span. Key areas include regenerative medicines and those tackling lifestyle issues, such as obesity and diabetes.

For a country like Australia, with an educated, English-speaking population, world-class research and scientific institutions, an established political and regulatory environment, and a culture of entrepreneurial flair, biotechnology represents a unique opportunity for national economic transformation.

With the attraction to biotechnology growing, investor appetite continues to be strong as the sector outperforms against the ASX200 (as evidenced below with the S&P/ASX 300 Pharmaceuticals & Biotechnology index in blue and the ASX200 in purple) from December 2016 to February 2018.

Biotech offers the opportunity to invest in tangible solutions for national imperatives as diverse as public health, economic security and environmental sustainability.

All of those benefits make the biotech industry a popular choice amongst investors. Indeed, according to PricewaterhouseCoopers’ MoneyTree Life Sciences Report, the biotech industry was the second-largest investment destination in terms of dollars in 2014. With $6 billion invested in 470 deals in the past year, biotech investment appears to be a very promising investment in the future.

What to think about when investing in biotech?

We understand the drivers for the biotechnology industry and we understand that Australia is pursuing the sector to contribute to future growth for the broader economy. The final piece is to understand what to look for in a biotech investment. There are some foundations that will help to isolate opportunity:

  • Innovative
    • The asset in development needs to actually solve a problem. Whether its to cure a disease or help manage a disease to improve the overall quality of life for the patient, it has to be a new technology and it has to be innovative compared to the current way of treating or curing that certain disease.
  • Materially improve the quality of life for patients
    • Unless this new method it materially better than what is currently available, patients won’t necessarily shift their existing treatment, will they?
  • Potential to reduce the public healthcare cost to government
    • With the population there will be a huge cost burden to the healthcare system which in turn is a direct cost to public health expenditure. As you can imagine, the government will be far more supportive of a technology/treatment/company that can efficiently and effectively mitigate costs over time.
  • Platform asset
    • An asset that has multiple potential applications. This saves time and costs of development and speed to market.
  • Market size
    • So, what is the current market size and what trajectory is it following? Is it growing? If it is forecasted to – such as the case with diabetes – the demand for the product will follow that trajectory.

A common misconception with biotech investment is that the only exit point is when the drug or device has regulatory approval for sale. The reality is completely different to that. As an asset goes through the development process it promotes through different stages – at each of these stage, its value increases. At strategic points along this development timeline, there are exit opportunities created which allow the realisation of investment over time rather than at some point in the distant future.

  • The theory is similar say for property development in that:
    • You buy a block of land and then go through the phases of development until you have a building/house/etc.
    • The value of the property increases at each stage of development. In addition, you have the ability to attract other investors at each point – thus creating exit points along the way.
  • Biotechnology is a field of endless possibilities. It holds the potential to cure cancer, solve world hunger, and potentially reverse climate change. Products resulting from biotechnology are already allowing humans to live longer, healthier lives; to be more environmentally sustainable; and to produce more with fewer resources. As a scientific field of endeavour, biotechnology is equivalent today to what personal computing was in the 1980s; sitting on the precipice of exponential growth. There is access to these types of assets – both at the direct and fund level (for diversification purposes). The question should not be “what is biotechnology?” but “how do I get access to it?”.

    The Biotech Investor Club is a resource dedicated to providing education on where the world is going, not where it has been. Here, we believe biotechnology and the Fourth Industrial Revolution will change the world as we know it - making things like disease diagnosis and treatment easier and quicker through personalised medicine. Powered by The iQ Group Global, the Biotech Investor Club harnesses The Group’s real-world expertise in drug and device development and combines this with investment acumen to give subscribers a platform for knowledge. Register your email to receive the latest biotech investor news at biotechinvestor.club.

     

    [1]https://www.bio.org/what-biotechnology

    [2]Biotechnology Market Analysis By Application (Health, Food & Agriculture, Natural Resources & Environment, Industrial Processing Bioinformatics), By Technology, And Segment Forecasts, 2018 - 2025

    [3]“Top drugs by sales revenue in 2015: Who sold the biggest blockbuster drugs?”, Pharmacompass

    [4]https://www.bio.org/sites/default/files/files/ValueofBiotech.pdf

    [5]ibid

    [6]ibid

    [7]Biotechnology Market Analysis By Application (Health, Food & Agriculture, Natural Resources & Environment, Industrial Processing Bioinformatics), By Technology, And Segment Forecasts, 2018 - 2025

    [8]IBISWorld 2017

    [9]https://www.business.gov.au/assistance/research-and-development-tax-incentive


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