The biotech industry has stolen the limelight after being pushed to the forefront of people’s minds as the world races to manufacture vaccines and restore a sense of normality. Early this month, we passed a historic milestone – the number of Covid-19 vaccinations globally finally surpassed the total number of confirmed cases, with that number now sitting at 178 million. Companies are now rushing to develop their own vaccines in an attempt to replicate the stellar success of Pfizer-BioNTech and Moderna. These healthy numbers are reflected in their balance sheets as well. Moderna (MRNA) is up 76% YTD and Pfizer recently raised guidance for 2021 revenue. Venture capital fund MIG cashed out its investment in BioNTech for a 4,500% net return and will distribute €600m to its shareholders. There is no doubt that biotechnology will play an increasingly prominent role within our post-pandemic society, sitting at the forefront of public perception, governmental policies, and investor interest. That being said, the prominence of an industry so intrinsically linked with our health and wellbeing deserves greater scrutiny and considered a healthy dose of realism.
At a glance
In 2019, the global biotechnology market size was valued at $449bn with a projected Compounded Annual Growth Rate (CAGR) of 6.84% from then until 2026, and this was before Covid-19 struck. More recently, the UK Bioindustry Association released its annual figures for investment activity in the UK biotech sector which outlined record investment figures for 2020 at £2.8bn and venture capital (VC) funding in the UK at an all-time high of £1.39bn. This positive trend is further reinforced by total global VC investment in biotech surging to £25.69bn from £14.63bn in 2019, indicating how the Covid-19 pandemic has acted as a tailwind to the biotech industry.
The biotech industry’s key players — Eli Lilly, J&J, Merck, and Sanofi to name a few — have all stepped up to the plate and dipped their toes in the world of vaccine production with degrees of success. Closer analysis of the industry reveals a highly interconnected and enmeshed network of firms in direct competition yet synergising with one another. Lonza, a biotech firm based in Switzerland, is taking on the bulk of the drug substance for Moderna’s mRNA vaccine, and Pfizer and BioNTech jointly developed their version of the vaccine, leveraging their combined research capabilities and global distribution network.
Governments and global organisations have also weighed in on the situation, with the COVAX initiative ensuring global equitable access to vaccines by supporting the building of manufacturing capabilities and provision of supplies. The UK government stepped up and took hold of the vaccine development and distribution program with the establishment of the vaccines task force (VTF) in April last year. Armed with deep pockets and a clear goal, to vaccinate the UK population and provide vaccines to the world, the VTF has thus far successfully orchestrated and signed off on deals with eight different vaccine groups all working in tandem to develop and manufacture vaccines. Such scientific leadership in vaccine development and evaluation has raised hopes that the VTF will make the UK a more welcoming place for the pharma and biotechnology industry.
This trend has also not gone unnoticed by the key players and institutions within the finance industry. Marshall Wace, one of the world’s largest hedge funds with $10bn of investments already in listed healthcare assets, is raising $400m for a fund to invest in privately owned healthcare companies with a focus on areas such as biotech and life sciences. In a similar vein, Goldman Sachs Asset Management will launch a new healthcare equity fund to provide investors exposure to companies at the “forefront of rapid innovation in healthcare”. A joint national investment program between the UK government and a United Arab Emirates sovereign wealth fund looks set to pour hundreds of millions of dollars into biotech and life sciences companies. Firms are buying into companies that stand to benefit directly from the pandemic and from the increased attention on the sector after it, forming a virtuous feedback loop from which we all stand to benefit.
The biotech scene is white hot, far from being a localised phenomenon or short-lived cycle. Biotechnology groups listed in Hong Kong have raised record amounts of funds this year through follow-on equity issuance, which is when already-listed companies offer more shares to raise capital, exceeding 60% of the total issuance for 2020 in just a month. This is after new biotech listings in Hong Kong raised $6.4bn and China $23.2bn in 2020 which is more than double the amount in 2019. Listing de-regulation and streamlined approvals process for drugs have spurred on growth within the biotech sector, reflecting similar investor interest across the pond in Western markets.
Thus far, we have only considered the sector in sweeping terms with broad brush strokes, yet the feverish pace of research and development almost necessitates a high-level overview. Established players such as Roche and Amgen are amongst those looking into the niche area of bispecific antibodies (a new form of precision cancer drug), whilst the CRISPR genome editing tool has led to the rapid upswing of innovation across the industry as hundreds of small companies benefit from financial backing. Investors hopping on board the increasingly popular SPAC bandwagon have also set their sights on promising young biotech companies. Nautilus Biotechnology, a Seattle-based biotech startup focused on detailed protein analysis, recently announced plans to go public via a SPAC merger and raise $150m in the process. It is joined by a similar biotech startup, Sana Biotechnology — looking to treat diseases using cutting-edge gene engineering — which had the largest-ever IPO for a preclinical biotech company. Another SPAC, VG Acquisition run by British entrepreneur Richard Branson, has agreed to merge with 23andMe which pioneered the concept of direct-to-consumer genetic testing and is now looking to pivot into drug discovery, making full use of its expansive research database. The list goes on, but the trend is clear to see.
We have here a singularly unique industry where the Friedman Doctrine, stating that the social responsibility of a business is to increase its profits, truly comes into play. Cell and gene therapies are lucrative future revenue streams which could line investors’ pockets yet are also potential life-changing therapies for those who need them. There is no end to the ethical dilemmas and moral ambiguities of investing in the biotechnology industry, with institutions and investors backing developments that could have far-reaching implications. With the right oversight and safeguards, the stage is set for truly transformative technologies and groundbreaking research to come into play over the next decade.
The biotech industry has now become mainstream as its role in protecting the health and sustainability of society is made apparent. The urgent need for rapid development and procurement of vaccines certainly played a role in its transition, but it is the plethora of other areas within biotechnology, such as gene sequencing and ‘biohacking’ of our DNA, which are poised to transform the future of healthcare. It was only two decades ago when the human genome was sequenced, and since then the advancements in research and number of companies looking for the next big breakthrough have only grown exponentially. Biotechnology has plenty of long-term growth potential even beyond the current pandemic, a view evidently shared by institutions and governments alike, with an increasingly global and far-reaching presence in all our lives.