By many measures, Biotechnology was one of the best investments over the last decade and the trend is expected to continue well into the next decade. It was the clinical innovation mindset fostered in the industry, that brought about new therapies ushering-in what can only be described as an era of “modern medicine”.
An investor buying into the iShares Nasdaq Biotechnology ETF in 2009 would have seen above 350% return to-date. Whilst yes, valuations 2009 were deeply depressed by the financial crisis, this compares tremendously well to the overall stock market that merely saw returns near 190%. Therapeutic breakthroughs that are nearing curative possibilities in a whole range of diseases demark a fundamental change of how illness can be managed – and patients’ lives and its qualities maintained – while laying the bedrock for the decade’s foundational financial returns.
The biotechnology industry has transformed the fates of many for whom a decade ago there was no treatment, to today where patients are not only seeing treatments for their diseases but humanity overall is living longer, far longer than expected just over 10 years ago.
It has not been an easy road for biotech investors, however. Selecting a company and team to invest early in has overall been haphazard business where many millions of dollars are required for the development of new therapies whilst it only takes one bad trial or a tempted FDA rejection to see biotech dreams (and the entire investment behind those) go up in smoke.
As noted earlier, the FDA’s old stigma of being “boring and slow” has been traded for new criticisms like those interpreting the term ‘Fast Track’ to imply “speedy, perhaps reckless regulator approval without full drug review”. However, it is also the FDA’s evolved procedures that may at least in part be credited for the innovation pace we have witnessed where FDA approved a record 43 new drugs or 73% of all new drug approvals last year through fast-track programs that reduce or skip major analysis that regulators would otherwise conduct. On balance, it appears that the trade-off between regulatory stringency and speed-to-approval has been successful in attracting capital from the global capital markets to the development of novel approaches in health and care.While there is objective “room to run” for a bright future for biotech firms over the next decade, there are notable risk areas that the industry will need to navigate mindfully. The last decade’s success for biotech was less than steady. The decade ahead will continue to see challenges including from evolving regulation, possible political headwinds, globalization of patient care, competitive dynamics possibly eroding financial attractiveness of the industry, virtualization, fragmentation of target markets paired with oligopolistic structures of those who serve them, and so on. Specifically, regulation may very possibly affect the costs levels of drugs to consumers putting a cap on how much biotech companies can project their products to “turn in” and marketing companies to charge payers for therapies.
It is expected though that either way biotechnology fundamental success will only continue to accelerate in the 2020s amidst the mere range of possible sources of innovation, the capital already available in the sector, the exponential impact bioinformatics and genetic approaches are expected to overlay, etc.. Capital market valuations might be further propelled given the previous underinvestment by many generalist that may possibly be attracted to return to the space given the demonstrated “alpha” returns.