Healthcare innovation has made great strides in the past few decades.
From cancer treatments to stem cell breakthroughs, 3D printed organs and even face transplants (not the Nicholas Cage-John Travolta Face-Off kind), science is moving in leaps and bounds and setting trends that most of us thought were science fiction just a few short years ago.
Behind the breakthroughs are biotechnology companies: those companies that research, develop and commercialise products, with a focus on either medical or agricultural applications.
Given these breakthroughs, the biotech sector attracts billions of dollars in investment as investors look to be part of the next big blockbuster discovery that turns a small company into a multi-billion-dollar player.
In this article we will look at what biotech is, major breakthroughs that have been made in the last decade … and beyond, why it attracts so much money and why you should invest?
What is biotech?
You may not have thought of it this way, but the beer you have on a Friday night after work is biotechnology.
That beer in your hand is made from pure science … and of course, love.
But mostly science.
All you must do is ferment the starch and sugars from biofuels and you can make bread, certain meats and cheeses and of course alcohol.
This is biotechnology in its most primitive form, but also a great example of how manipulating a living organism can create groundbreaking products.
Now apply that science to medicine.
When we talk about biotech it is generally not about the manipulation of yeast to make beer.
When we talk about biotech, it is usually in the context of how doctors and researchers aim to produce medicine derived from a living organism and how technology is allowing this to happen.
Biotechnology is technology in combination with biology.
In a medical sense, modern biotech is the process of using technology to combat debilitating and rare diseases and improve quality of life.
Its importance has not been lost on investors.
Successful biotech companies have enjoyed enormous growth in revenue and profits, which has in turn lined the pockets of those who backed the company to achieve its goal.
Given all the breakthroughs made in the biotech space, it is one that draws significant investor interest.
Some of the biggest advancements in biotechnology have been in:
- Stem cell research
- Human genomic sequencing
- Targeted cancer therapies
- Augmented reality in surgery
- Face transplants
- Gene editing
- 3D printed organs
- Nerve regeneration
- And more…
Why biotech attracts the big money
That list above would be enough for an investor to pile into biotech.
But this is a growing industry behind some of the biggest macro themes in the world, not least COVID-19 and vaccinations.
According to Grandview Research, the global biotechnology market is expected to reach $2.44 trillion by 2028.
Pfizer, one of the major players in the COVID-19 vaccine roll-out reported 86% revenue growth in the second quarter of 2021, that was with the sale of its COVID-19 vaccine excluded in those figures.
By the time it had released its Q3 results, the company reported revenue of $24.1 billion, compared to a forecast of $23.5 billion and $22.6 billion consensus estimate.
The company’s bottom-line of $1.34 on a per share and adjusted basis was up a solid 133% y-o-y.
No matter what you think of the vaccine, the Covid-19 vaccine is a key growth driver for any company. For Pfizer it produced sales of $13 billion during the quarter.
The nine-month sales (ending Sep 2021) for the vaccine stands at over $24 billion, with forecasts of $36 billion for the full-year 2021, and another $29 billion in 2022.
Pfizer is one of the biggest companies in the world and exemplifies just how much money a biotech can make when it nails its products.
That kind of upside is music to investors’ ears, but if you are looking to invest in a biotech company, what should you be looking out for?
The pros and cons of investing in biotech
As with any investment decision, how successful you are can be put down to how well you do your due diligence.
The same level of scrutiny you apply to a tech or mining stock, must be applied to a biotech stock – a stock that represents a company in the biotech sector.
With biotech however, there may be greater risks involved. While investing in biotech companies can lead to massive gains and is one of the reasons why you would part with your hard-earned money, there are pros and cons.
Let’s start with the pros.
The pros of investing in biotech
Global market Insights predicts that the global biotechnology market will surge US$950 billion by the year 2027. With an increase in chronic diseases and healthcare costs associated with those conditions, innovative products that can keep costs down and reverse the trend will no doubt grow exponentially in value.
Similarly, Fior Markets predict the biotech sector to have a compound annual growth rate of 7.02 per cent between 2020 and 2027 to reach US$833.34 billion by the end of the forecast period.
As we alluded to earlier, just a year later Grandview Research estimates the global biotechnology market is expected to reach $2.44 trillion.
Whichever way you look at it, they are big numbers.
We are talking generally about medicines and technological innovations in the medical space. So, any product that can successfully mitigate health risks is definitely a product to watch. The same goes for biotechs working in the agricultural space.
- Socially responsible investing.
Investing in biotech companies is a socially responsible thing to do.
Socially responsible investing is a trend that has been creeping up on us for several years now. In fact,
When considering a stock, socially responsible investors, otherwise known as ethical investors, will usually consider factors that are important to them for instance environmental concerns, social change, corporate governance and/or ethical factors, as well as financial return.
Ethical investors want to know what their investments are funding based on personal values.
Most biotech stocks are usually working toward creating good within society and for the environment.
Biotech stocks are perhaps the ultimate embodiment of socially responsible investing as they predominantly feature lifesaving, life changing or environment changing innovations.
Biotech stocks are an excellent means of maintaining a balanced portfolio, while backing groundbreaking technology. They are offer a mix of high-risk high reward plays, as well as more established, profitable companies to choose from.
Investing in biotech stocks can be highly lucrative. The successful launch of new treatments or innovations can raise a company’s share price exponentially, especially if it is a small cap stock priced under $5 per share. Then there are macro factors to consider. Take the pandemic for example. Companies such as Pfizer who have created effective COVID-19 treatments and vaccines have generally done well by shareholders. It takes just one event and the discovery of complementary solutions for a company’s share price to take off.
The cons of investing in biotech stocks
With every investment comes risk and in biotech the risks can be higher than for any other sector. Most notably, a biotech company’s product could be a commercial failure. If that is the case, given the millions of dollars it takes to develop a product, commercial failures could sink the company.
Every biotech must go through clinical trials to prove the efficacy of its products. If those trials fail, it is either back to the drawing board or complete abandonment. That, again, means millions of dollars wasted and a potentially failed investment. If you want to mitigate against clinical or commercial failure, have a look at what stage the company is at. Stage 1, the research and discovery phase is the riskiest. There is no product. Stage 2 is the preclinical stage which is also risky. These are young companies that have done the research, but little more. There are still capital requirements and regulatory hurdles to navigate. Early clinical stage companies have developed their product and had it approved for human trials. This is an excellent stage to invest. If you want to mitigate the risk further, you should look at late-clinical-stage biotech companies, which are at the final step before bringing new medical products to market and commercial stage companies.
With great risk …
As you can see, there are great risks, but also great rewards to be had.
Depending on your risk appetite, there is generally a biotech company for everyone that not only gives you the opportunity to make big bucks, but also invest in a product or innovation that can be either life or society changing.