Pandemic provides launchpad for multi-year biotech boom

The biotech sector has been propelled into the limelight over the past year, with the successful development of the Covid-19 vaccine offering the world hope in overcoming the pandemic. Not only were multiple vaccines successfully developed and launched from scratch, production is ramping up and the roll-out continues to accelerate – with almost six billion doses now administered across the globe.

American biotech group Moderna has been a particularly successful story. While only publicly listing in 2018, the group has been at the cutting edge of innovation in recent years and is now the largest biotechnology company in terms of market capitalisation.

While such pandemic-related triumphs have naturally dominated headlines, seldom have we experienced so many important milestones across the wider sector. These breakthroughs must not be overlooked, as they set the stage for further innovation and growth in the biotech space moving forward.

Major achievements beyond Covid

One major, though controversial and debated achievement this year was Biogen’s Aduhelm drug to treat Alzheimer’s Disease, which was approved in June. A new treatment for this devastating disease after so many years of failures will provide hope to those with the illness and those treating it. In addition, the social cost of caring for a patient with Alzheimer’s is vast and treatments potentially delaying the need for intensive round-the-clock care are a huge saving to the system.

The rapid evolution of RNAi vaccine technology was also inspiring. This innovation prevents the need for infectious pathogens to be exposed to the body to develop immunity, allowing researchers to fast-track many stages of vaccine R&D. It is hoped further developments in the technology, which should attract greater funding due to its Covid-19 success, can unlock solutions for particularly recalcitrant diseases – including tuberculosis, HIV and malaria.

Another milestone was the launch of the first KRAS inhibitor for lung cancer treatment, a mutation affecting 10-15% of lung cancers. KRAS is a well-known and understood driver of many solid tumours and had historically been considered as ‘undruggable’. This year, Amgen successfully developed and launched its KRAS inhibitor. Smaller peer Mirati Therapeutics – which forms part of IBT’s portfolio – has moved its KRAS inhibitor into late-stage clinical trials and, if all goes to plan, it is expected to launch in 2022.

Alongside accelerating innovation, new treatment modalities are also evolving at mind-boggling speed. We expect continuous improvements in cell and gene therapies, and eagerly anticipate the evolution of the gene-editing and DNA-altering CRISPR technology.

Capitalising on sector volatility

With the public now much more aware of the biotech sector due to the pandemic, understanding of the drivers and methodology behind clinical trials, vaccines and mRNA technology has grown significantly. This should propel additional investor capital towards biotech.

Nevertheless, despite numerous positive longer-term drivers, the sector remains prone to periods of volatility. While the news of Covid-19 vaccines and the election of Joe Biden helped the S&P Biotechnology Select Industry Index spike 167% from the depths of the pandemic crash in March 2020 to its February 2021 high, the index has since given up more than a quarter of its value.

We capitalised on this correction – which primarily centred around the smaller end of the universe – to invest in a number of compelling innovators at more realistic prices. Consequently, we have moved selectively into some smaller names within our sector.

As for the M&A market, we expect the recent correction, combined with a return to more normal working practices, to power renewed takeover vigour – partly because increased face-to-face interaction helps to trigger more complex deal making. We are already noting signs the M&A market is heating up, as well as a widening of potential acquirors.

Traditionally, ‘big pharma’ dominated the M&A space, but ‘big biotech’ and private equity deals are now much more common. For example, Swedish biotech group Orphan Biovitrum (Sobi) received an $8bn takeover offer from private equity firm Advent and Singapore’s sovereign wealth fund GIC earlier this month. Other recent deals include Pfizer’s $2.3bn acquisition of Trillium Therapeutics, and Sanofi’s $1.9bn deal for Kadmon.

We anticipate significant innovation-led deals to follow for the remainder of the year and beyond. Not only do we expect this to be beneficial for biotech investors, it is also extremely positive for the countless individuals set to benefit from continued innovation.