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5 trends driving the future of biotech
Laura Nelson Carney
Equity Investment Analyst
KEY TAKEAWAYS
  • The biotech industry is undergoing a renaissance that has led to an explosion of novel drug targets in recent years.
  • This may lay the foundation for new areas of growth in areas such as the use of cells and genes as medicine.
  • China’s role in the global biopharmaceutical industry is key from a size and innovation perspective.

I am often asked about my outlook for biotechnology in light of how rapidly vaccines were developed for COVID-19. I would say this may be a sign of things to come for the industry. I’ve been seeing a renaissance that’s led to an explosion of novel drug targets in recent years. The industry pipeline is relatively full, for both small and large drug companies across the United States, Europe and China. And if some of these encouraging developments take hold, this could help fuel growth over the next decade.


These are some of the trends informing my view:


1. COVID-19 has accentuated a trend of faster drug development.


It is possible in certain circumstances to go much faster in developing drugs than people previously thought. The accelerated approval pathway that the U.S. Food and Drug Administration (FDA) used for the coronavirus vaccines has been in place for some time, as well as at other regulatory agencies around the world. Europe, Japan, China and others have similar mechanisms that make it possible to move more quickly, particularly when the unmet need for treatment of a disease is very high. This will likely be used more frequently given the attention that it has received, though there has been some criticism as its use outside of cancer has increased.


As can be seen in the chart below, the speed of vaccine development has reduced significantly over time. In the case of COVID, we received the virus’ genome sequencing in January of 2020 and had authorized vaccines by the end of the year, which is just stunning.


It may not be possible to do that again for another vaccine, unless there are billions of dollars of government funding that allow companies to assume all the risks in parallel and move as fast as possible. But since the pandemic, companies are collaborating in ways that we haven't seen before.


Pharmaceutical companies are innovating at a rapid pace

Timeline of previous vaccine development (years)

Sources: Capital Group, NIAID, Our World in Data. Date ranges represent the approximate time between the year the pathogenic agent was first linked to the disease and the year that its vaccine became licensed in the U.S.

2. The pandemic has shone a spotlight on infectious diseases.


Infectious diseases are among the primary sources of illnesses around the world. yet this was an underfunded corner of drug discovery research. When it came to funding and deals between large and small companies, it used to rank near the bottom of the list. It's now second only to oncology in terms of the attention and funding it is receiving when it comes to mergers and acquisitions, venture capital capitalgroup.com 3 and private equity investments. Many of the bigger problems are now being tackled with substantial investments.


3. We are moving into a next big horizon of innovation of cells and genes as medicines.


We’ve seen three big phases in the history of medicine. For about 200 years, treatment was by chemicals that we could make in a reproducible way. Most of our newest and best medicines came from factories. Then, in the 1970s, we learned how to make proteins in a reliable way in a factory rather than, for example, extracting insulin from cows to use as medicine. That was the era of biologics. It began first with monoclonal antibodies. The next generation of those are more engineering-specialized antibodies.


 

Risk factors you should consider before investing:
  • This material is not intended to provide investment advice or be considered a personal recommendation.
  • The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
  • Past results are not a guide to future results.
  • If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
  • Depending on the strategy, risks may be associated with investing in fixed income, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.


Laura Nelson Carney is an equity investment analyst at Capital Group, with research responsibility for pharmaceutical and biotechnology companies in Europe and Asia, as well as life sciences in Asia. She has seven years of investment industry experience and has been with Capital Group for three years. She holds a PhD in neurosciences from Imperial College London and a bachelor's degree in human biology from Stanford University. Laura is based in London.


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Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.