Select your investor profile:

This content is only for the selected type of investor.

Institutional investor?

Thematic investing

Biotech: an act hard to follow

March 2018

Biotech companies are thriving, with now more than 700 listed on international equity markets1. What is the secret to their competitiveness?

Pharmaceutical companies are losing ground to a new type of drug manufacturers. While pharmaceutical companies produce drugs on a chemical basis, biotech companies use live organisms such as bacteria or enzymes to manufacture their products. In addition, extended knowledge of human DNA has allowed biotech companies to target specific diseases with much more precision than conventional pharmaceutical companies. The industry has a predicted growth rate of 15 to 20 percent annually2. Thatis reflects represents an expected growth rate of 6 percent for worldwide total prescription drug sales for the period up to 20223. More than 700 biotech companies are now listed on international equity markets1. The total revenue of listed biotech companies has risen sevenfold between 2000 and 2016, from just over $ 20 billion to almost $ 140 billion.1

Notable successes

Biotech companies have already achieved some notable successes. ‘A good example is the cure for hepatitis C, which was developed by a large American biotech company’, says Marie-Laure Schaufelberger, product specialist for the Pictet-Biotech fund. However, the cure carries a large price tag. A three-month treatment can cost as much as $70.000 to $100.0004. There are dozens of biotech companies with one or more products in their last phase of clinical development before approval by American regulator FDA.

An industry to reckon with

Within the conventional pharmaceutical industry, as the patent of a successful drug expires, a common fear for its manufacturer is that generic companies will reproduce the medicine and market it at a significant discount. Since patents on Aspirin have been running for a long time, other companies than its inventor Bayer are allowed to manufacture and sell the drug. That explains why a tablet costs only a few cents. Consultancy firm EvaluatePharma estimates that pharmaceutical companies are set to lose revenues of almost $80 billion in the period 2017-2020 as a result of this growing competition3. For biotech companies, this risk is considerably smaller. ‘Anyone who wants to make a medicine similar to a biotech drug that has gone off-patent – also known as a biosimilar - first needs to prove that the product has exactly the same biological characteristics as the original cure’, explains Schaufelberger. ‘That is far more complex than with conventional pharmaceutical drugs, where you merely have to show that the chemical composition is similar.’

High hurdle for generic competition

In the United States, companies planning to introduce a generic copy of a biotech drug that has gone off-patent face an additional hurdle. ‘These drugs need to go through clinical trials, similar to the original biotech medicine’, says Schaufelberger. ‘Alongside ample capital and expertise, you will also need high-quality laboratories to safely and efficiently manufacture generic copies and compete with a successful product after it has gone off-patent. Among the companies that possess all those assets are many big biotech companies. If they play their cards well, we think they have the potential to tap into a new source of revenue. We believe the dynamics of the biotech industry make this an interesting investment area.’
We believe the dynamics of the biotech industry make this an interesting investment area. – Marie-Laure Schaufelberger, Product Specialist

This is one of a series of articles investigating the themes driving our healthy living thematic funds – four actively managed global equity funds.
Focusing on the structural forces shaping our world, our investment managers seek to deliver a compelling risk-adjusted return over the long run.

Discover more on our range of healthy living strategies by clicking on the boxes below.