How should biotech, an industry valued largely on promise rather than profits, present itself in the middle of a credit crunch and seeming bear market?
Well, build on the promise – a fascinating article appears in a recent FT: "Three technologies that could transform patient care". The three highlighted technologies are RNAi, a system of using RNA, the messenger between DNA and proteins, to modify genes causing trouble; GWAS, looking at individual genetic variations which highlight a person's disease risk; and IPSCs, pluripotent stem cells that act like embryonic stem cells and can differentiate into many cell types, without the associated ethical and practical challenges of using embryos.
Of the three technologies, only RNAi is at clinical stage, while GWAS and IPSCs are still in early research. However, each of the areas is backed by significant research interest and dollars. And though products may still be some time in development, therapeutic breakthroughs generally come through innovation and advancing the body of knowledge.
Sadly, this is not the view taken by the European Federation of Pharmaceutical Industries and Associations (EFPIA). Highlighted in an article by BioWorld ("EU Drug Development Slowdown Due to Biotech Complexity"), the body is defending an enquiry by Neelie Kroes, the European competition commissioner, into restrictive business practices by European drug companies. The EFPIA claims:
"The biotechnology revolution has been just that, a revolution. It has presented pharmaceutical companies with so many promising targets and opportunities for innovation that identifying the best candidates is costly and results in many blind alleys. Translating new discoveries into marketable products has taken the industry longer than expected. Breakthroughs, such as genomics, remain vital sources of innovation, but the new products are in large part still to be developed."
While it's true that the "biotechnology revolution" has led to "blind alleys", this is usually true of any type of innovation – only the really good stuff filters to the top, and eventually the market. And an industry which is so heavily dependent on R&D needs biotech to provide new approaches, tools and products.
Meanwhile, the pharma industry continues to suffer in the eyes of investors (AMEX Pharmaceutical index down 15% over 1 yr), along with broader indices (NASDAQ down 15% over 1 yr, S&P 500 down 17%)…
…and interestingly (I didn't expect this until I checked), the NASDAQ Biotechnology index has faired much better, with overall 0% return over 1 yr (i.e. 15% outperformance compared to pharma and broader indices):
- Innovation takes time, belief and support
- The biotech industry, for now, seems to be doing a good job selling hope, while all around is doom and gloom
- If you do invest in biotech, you could do much worse than checking out an index based approach, given the individual company risk. (NB.But do your own research, and nothing in this blog is an investment recommendation).