The biotech industry has expanded rapidly in the past decade, with investment in biotechnology and pharmaceutical firms pouring in from venture capitalists.
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The Nasdaq Biotechnology Index, comprised of biotechnology and pharmaceutical companies, has grown to 269 firms since 2010 – and quintupled in value. Startups have fared especially well, raising $65 billion in IPOs in 2020, far exceeding the $4 billion raised in 2011. Venture capitalists are especially bullish, investing $20 billion in pharmaceutical and biotech firms so far this year, nearing last year’s record $27 billion. Life sciences venture capital firm Flagship Pioneering, located in the biotech hub of Cambridge, Massachusetts, has spun out 26 companies since 2013 and hopes to continue at a pace of up to 10 a year.
Several factors are driving the sustained high growth trend in biotechnology. Tim Haines of London-based venture capital firm Abingworth, which also focuses on life sciences, attributes it partly to the popularity of “philanthropic capitalism” among investors. Haines also notes that about 64% of drugs in late-stage development are coming not from big pharmaceutical companies but from younger firms with novel technologies – particularly related to cell and gene therapies, delivery systems for them, and identification of patients most likely to benefit from them.
According to a report from the Alliance for Regenerative Medicine (ARM) released in March, cell and gene therapy firms were among the highest-performing in the Nasdaq Biotechnology Index last year. ARM also found growth in the regenerative medicine sector, which includes tissue-based treatments as well as cell and gene therapies. Those targeting cancer, immune system and brain diseases as well as some infectious diseases are garnering a lot of new investment.
“Everyone is vying to be the next Moderna”, The Economist observes. The Cambridge-based pharmaceutical and biotechnology firm was lauded for its development of a successful COVID-19 vaccine and is reaping the rewards. Since going public in 2018 with a valuation of $5 billion, Moderna’s market capitalisation has shot up to $156 billion. The current crop of newer biotech firms hope to follow its trajectory and progress from developing therapies to manufacturing them.
There are certain risks in the biotechnology sector, not the least of which is talent: Relatively few individuals possess both an advanced degree in life sciences and high aptitude in management. Further, this is a business that cannot work remotely. The high cost of lab space and other expenses can make it difficult to turn a profit, especially for startups. Five-sixths of firms in the Nasdaq Biotechnology Index lost a combined $33 billion in 2020, while only one in six made money. Moderna was one of them, but it was the first time in a decade. Fortunately biotech investors tend to play the long game.