Investing in biotech is a top choice

The biotech sector has come up as one of the most sought-after by investors in the post-Covid world. Investing in biotech companies has taken the centre stage as revenues of such firms surged in 2021, says AXA Investment Managers citing an EY report.  

While higher revenues can be attributed to sales of Covid-vaccines and other lifesaving drugs, the sector is seeing rising investment in research and development. R&D investments have doubled to $88.6 bn in 2021 from $45.7 bn in 2016. Currently, there are over 6,000 drugs which are in the active development stage and this presents a bunch of opportunities in this sector.

The biotech industry clubbed into healthcare a few years ago but has now carved out its own space. Rising interest from investors stems from the cutting-edge R&D, innovation and use of disruptive technology.

Last year the top 10 biggest-selling drugs were biotech drugs, suggesting the robust growth of this industry. A key point of interest for investing in biotech companies is the disruptive approach to how drugs are made for medical conditions which were earlier non-treatable or difficult to treat. The most recent example is the use of mRNA technology in Covid vaccines by Pfizer – BioNTech. AXA IM says leading drug makers are increasingly using mRNA in their drug development.

The shift in the lifestyle of the global population and changing demographics, such as an ageing population, adds to the potential of the biotech sector. Currently, 10% of the global population is at the age of 65 or above while it is expected to grow to 16% in the next 30 years.

Additionally, not-so-rigid entry regulations for the industry are helping many companies enter the development stage. That said, many of them may fail in the early stages. AXA IM says that fund managers and investors need to evaluate the R&D process, probable use of the drugs in development, why they can fail or pass and other such factors.

Apart from Covid-vaccines and other lifesaving drugs, biotech firms are exploring oncology and neuroscience in the medical field. Cancer treatment trials based on innovative technology have risen by 56% in 2021 compared to 2016.

The cherry on top is that the biotech sector is somewhat shielded from economic fluctuations as the need for medicines and medical treatments are not correlated to the economic cycle.

“It is our view that high-efficacy, safe drugs will always have a material commercial opportunity as there are so many diseases and therapeutic areas where new products are desperately needed and, sadly, patient numbers continue to increase,” writes, Linden Thomson, Portfolio Manager for Equities at AXA IM.

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