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Thematic investing

Biotech: finding new solutions to the world's medical problems

January 2018

Harness the power of medical innovation

We invest in biotechnology firms focusing on innovation and developing new medicines. We analyse both smaller biotechnology companies and larger global biotechnology firms, aiming to capture the best opportunities in an industry with a predicted growth rate of 15–20 per cent per year1.

1. Healthcare economics

The need for better, more specific and efficient medicines is growing as global healthcare costs continue to rise.
Pharmacotherapy  is changing the nature of disease
Pharmacotherapy is helping change debilitating age-related disease to manageable disease, or transform fatal illnesses to chronic ones.
According to government projections, US healthcare expenditure is projected to represent up to 20 per cent of GDP by 20222. Longer life expectancy will only mean a higher rate of chronic disease and increased demand for healthcare products and services. More effective drugs, however, can help reduce overall healthcare costs and keep patients out of hospital.

2. Innovation

Innovation in biotechnology is driving the development of increasingly targeted therapies that offer enormous potential health benefits for patients with cancer, HIV/AIDS and many other serious diseases. Currently, there are more than 250 biotechnology health care products and vaccines available to patients, many for previously untreatable diseases, with many more being developed3.
Bacteria in the human body outnumber human cells by ten-to-one. Scientists are now exploring ways to manipulate these micro-organisms to help fight disease. – Reference: Human Microbiome Project

The biotechnology industry remains highly fragmented, with over 80 per cent of companies in the sector having a market capitalisation of less than USD 1 billion4. Most biotech firms are early-stage companies focusing on research in niche areas. Successful discoveries often result in deals with larger pharmaceutical companies that have the capital to fund expensive clinical trials of new medicines. In other words, mergers and acquisitions are vital in bringing new innovative products to the market.

Biotech companies can also represent attractive takeover targets for cash-rich pharmaceutical firms, as their expertise in research and innovation is highly valued. This creates the potential for consolidation and takeovers, which could help generate strong returns for investors.

3. An improving regulatory environment

Currently, the success rate for drug development is low: at best, only one in five new drugs tested on humans will be approved. In the US, the FDA wants to speed up the development of effective treatments and reduce the time it takes for them to be approved. In 2014, the FDA approved 41 new drugs – the highest amount since 1996.
Bringing a drug to market is a lengthy process
It requires an average of 14 years between the discovery and the commercialization of a new drug. Out of 10,000 compounds going through the process, only one will end up being approved.
Reference: Biotechnology Innovation Organization
With the majority of biotech companies either involved in clinical trials or at an earlier stage of drug development, a quicker response from the regulatory system should help shorten the time taken to bring new drugs to market, giving further encouragement to the sector’s culture of innovation and discovery.

Meeting tomorrow's healthcare challenges

Biotechnology companies will play a vital role in the future development of medicines that could help patients survive what are currently fatal diseases and improve the quality of life of people suffering from debilitating conditions. Our strategy aims to find the most innovative companies developing drugs that can help combat lifestyle diseases and fatal illnesses, thereby helping ease the pressures on healthcare systems. A fertile corporate environment and ongoing scientific innovation mean the biotechnology industry is home to a large number of compelling opportunities for long-term investors.