Friday, March 29

Capital Group: 5 trends that determine the future of biotechnology


I am often asked what my perspectives are on the biotech industry given how quickly COVID-19 vaccines have been developed. Possibly all this is just an indication of everything that is yet to come in the sector. We have seen a renaissance that has spawned a flurry of new drug candidates in recent years. The portfolio of drugs in research and development is relatively full, both in small and large drugmakers, spread across the United States, Europe and China. If some of these encouraging developments take hold, they could help drive industry growth over the next ten years.

These are some of the trends that support Laura Nelson’s thesis:

1. COVID-19 has accentuated the trend towards faster drug development:

In some cases it is possible to develop drugs at a much faster rate than previously thought. The fast-track approval process used by the US Food and Drug Administration (FDA) for coronavirus vaccines has been in place for some time, as well as by other regulators around the world. Europe, Japan, China, and other countries have similar mechanisms that have enabled faster progress, especially when treatment for a disease is imperative. These mechanisms will tend to be used more frequently, given the attention they have received, despite criticism of their use in areas other than cancer.

As can be seen in the graph below, the speed of vaccine development has increased considerably over time. In the case of COVID, we received the genome sequencing of the virus in January 2020 and we already had licensed vaccines by the end of that year, which is amazing.

This may not happen again with any other vaccine, unless billions of dollars of public funds are put in place to allow companies to take all the risks in parallel and move forward as quickly as possible. However, since the pandemic, companies are collaborating in a variety of ways that we haven’t seen before.

Pharmaceutical companies are innovating fast

2. The pandemic has put infectious diseases in the spotlight:

Infectious diseases are one of the world’s leading sources of disease, yet they form an underfunded area of ​​drug discovery research. In terms of financing and the number of deals between large and small companies, they used to be at the bottom of the list. They now rank second only to oncology in terms of attention and funding they receive from M&A, venture capital and private equity investments. Many of the main problems are now being tackled with huge investments.

3. We are entering a new great period of innovation in terms of cells and genes that are used as medicines:

We have seen three great phases in the history of medicine. For around 200 years, treatments were done with chemicals that we could manufacture in a reproducible way. Most of the best and newest drugs came from factories. Then, in the 1970s, we learned how to reliably make proteins in a factory instead of, say, extracting insulin from cows to use as medicine.

The age of biology was born. It started first with monoclonal antibodies, but then came a new generation of specially engineered antibodies.

The third great period is made up of cells and genes that are used as medicines, although we are only at the dawn of it. This process fulfills a double promise: (a) to obtain functional cures of diseases that we could not treat in the past (or did so without good results) with chemical products or proteins and (b) to obtain unique treatments instead of a chronic therapy for the rest of the patient’s life. At the moment, US FDA-approved cell or gene-based therapy products are being used to treat cancer, eye conditions, and rare hereditary diseases. In the future, it is hoped that they will be used for more common diseases as well.

Therapies in development are increasing, with more than 360 in the United States aimed at addressing various diseases. There is also a large pool of eligible patients who could technically receive these therapies. However, the manufacture of cells and genes is relatively new and much more complex and expensive than the manufacture of proteins or chemicals, which creates substantial risks.

4. China is moving fast down the innovation curve:

China plays a prominent role in the global biopharmaceutical industry for two reasons: It is the second largest end market in the world, after the United States, and it is rapidly expanding. It is also a source of relevant innovation on a global scale. China’s version of the FDA is becoming more and more like its US counterpart, in that it has adopted some identical practices in how it makes decisions. Regulatory authorities changed some of the applied technical standards to align with those in Europe and the United States. Now this process is somewhat more harmonized. They have also started sorting out applications to move away from prioritizing old types of undifferentiated drugs to focus on newer ones.

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In China there was a lot of old undifferentiated generic drugs. For example, there were almost 100 manufacturers of metformin (an old generic diabetes drug), which far exceeds what is needed; this explains the decline in manufacturers that is being recorded. At the same time, China is using the money it saves to pay for innovative drugs for the entire population. The Chinese government is showing a willingness to pay for innovation, which incentivizes companies to keep investing in it.

Since 2015, the Chinese authorities have been promoting policies that encourage and incentivize national companies to compete with multinationals. In this sense, the biopharmaceutical industry is somewhat different from other sectors in China, which could be the next to come under more regulatory scrutiny.

5. New advances in the use of the immune system to treat diseases:

Oncology was the first area in which this concept triumphed beyond diseases of the immune system itself; Drugs like Merck’s Keytruda and Bristol-Myers’ Opdivo have become one of the biggest categories in oncology. However, we are just beginning to dig into the subject and figure out how we can harness the human immune system to tackle other diseases.

The idea of ​​better understanding the immune system and harnessing it to potentially intervene in other diseases has been gaining momentum. One such area is immuno-oncology, which is the study and development of cancer treatments that harness the body’s own immune system.

Drug discovery is more international than ever

Research happens in companies of any size, large or small. Large companies are keenly aware of how they need to balance their priorities and where they get innovation from, both internally and externally. They can be nurtured by ideas from both academic laboratories and tiny companies; hence they buy small and medium-sized companies throughout the entire process.

The number of small and medium-sized companies has increased dramatically, as has the amount of venture capital funding going into the life sciences sector in general and biopharmaceuticals in particular. It’s the small businesses that take the biggest risks and work hardest on the hottest new ideas. Then, when they get some acceptance, either through animal models or preliminary clinical data, they start partnering with big pharmaceutical companies as well.

Part of what drives small- and mid-cap biotech listings is the anticipation of potential acquisitions or partnerships with larger companies. Innovation happens in all geographic areas, not just in Cambridge, in the UK, or in the San Francisco Bay Area. In China, for example, there are plenty of small start-up companies working in new areas of biology, and many emerging quickly with improved versions of categories other multinational companies are working on.

For this reason, I consider it important to apply a bottom-up analysis approach on a global scale that allows us to identify the best value opportunities. I don’t think a multi-pronged approach can be taken in this case.



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