The biotechnology cycle
The information technology sector and the biotechnology sector have a lot in common. They both develop the best know-how for industrial development, advance the latest innovation and technological trends, and achieve the highest rate of efficiency improvements. However, while most investors feel at ease with a technology investment, they might be reluctant to consider a biotechnology investment due to a lack of understanding and an absence of easily accessible information.
While gathering specific information can indeed be difficult, we believe that the biotechnology sector has an excellent long-term growth path ahead, thanks to:
- more and more people having access to medicine; advances in emerging regions have created new groups of buyers,
- the ageing population, a promising driver for the sector given the major part of a person’s medical expenses are spent in the last years of their life,
- the growing demand for and supply of more minimally invasive treatments, which is pushing technology development beyond the current frontiers, and
- the specific and determined focus given to achieving highly cost efficient treatments.
Furthermore, from an investment point of view, the biotechnology sector provides value to investors, not only because it has substantial upside potential but also because returns in this sector tend to be uncorrelated with the rest of the market.
At the sector level, R&D activity is vibrant despite high entry hurdles for new treatments and relatively high failure rates. We consider companies addressing “orphan diseases” (i.e. rare diseases that affect a small percentage of the population) to be among the principal beneficiaries as the entry hurdles for rare disease treatments are generally lower than for traditional applications. Furthermore the time to market is shorter because there are well-identified population groups, and in the absence of competition the expected return on investment is likely to be higher than it is with conventional medicine.
List of well-positioned (company metrics, risk-reward drivers) biotechnology companies:
Top 10 trade ideas for 2014 Proposition 4 Biotechnology.pdf
Quick-links: Amgen, Shire, Alexion, Celgene, Biogen, Merck,