Biotech

In the cleanest form, biotechnology refers to the sector that uses cellular and biomolecular methods to improve or create products in various industries.

Public companies involved in biotech tend to stay close to the medical landscape, although they can have a bit more leeway as to what kind of business they wish to pursue.

The majority of biotech companies are engaged in the long-term research and development of new medicines and vaccinations. However, the field extends beyond this particular focus on healthcare.

Objectives such as increasing agricultural efficiency to feed the world’s hungry and developing biofuels to reduce the energy required for manufacturing show the diversity and rapid expansion of the industry.

Here, the Investing News Network provides an overview to help better answer the question: What is biotech investing?

What is biotechnology?

Putting it simply, biotechnology is classified as technology founded on biology. According to Bio.org, biotechnology products are developed to fight debilitating and rare diseases while using clean energy and sustainable manufacturing processes.

Research from IBIS World indicates that the biotech market in the US has various areas of focus, including technologies related to human and animal health, natural resource recovery and agriculture.

The majority of companies that responded to a BIOTECanada survey classify themselves as health biotechnology companies; the second most common classification was research and development, followed by agricultural and veterinary biotechnology and medical device technology.

As it currently stands, there are hundreds of existing biotech products as well as ones in development for untreatable diseases. Generally speaking, biotech products are geared towards eliminating infectious disease rates, treating life-threatening diseases and providing individuals with treatments to reduce health problems and side effects.

State of the public market

2018 was an interesting year for the biotechnology sector in terms of the initial public offerings (IPOs) that took place as well as the high number of US Food and Drug Administration (FDA) approvals.

A report from Vantage estimates that biotech IPOs raised US$7.23 billion over the course of the year, largely thanks to Moderna’s (NASDAQ:MRNA) IPO in December, which raised US$604.3 million alone. This was, at the time, the largest biotech company to IPO.

Prior to this, Allogene Therapeutics (NASDAQ:ALLO) had the biggest public offering in over a decade, according to Fortune, at US$324 million.

In 2019, more than 40 biotech IPOs have been priced or will be going public before the first half of the year is over, according to the BioPharmCatalyst Biotech Stock Calendar. This surge of IPO activity is a surely a positive sign of the state of the market for biotech investors.

In terms of FDA approvals, last year the agency set records with 62 novel drug approvals. As of June 10, 2019, there have been 12 novel drugs approved for types of cancer, multiple sclerosis, sleep apnea, postpartum depression and gene therapy, to name a few.

Biotechnology ETFs are also making waves thanks to Pfizer’s (NYSE:PFE) blockbuster proposed acquisition of cancer therapy company Array BioPharma (NASDAQ:ARRY) for a staggering US$11 billion.

According to CNBC, investor interest is shifting to biotechnology ETFs such as the iShares NASDAQ Biotechnology ETF (NASDAQ:IBB) and the SPDR S&P Biotech ETF (ARCA:XBI) for large market capitalization exposure. Other biotech ETFs such as the ALPS Medical Breakthroughs ETF (ARCA:SBIO) are garnering interest due to holdings that are focused on cancer and immunotherapy treatments that are nearing the final clinical trial stages.

Market moving forward

Although big pharma is still the bigger player for income, biotech is close by with a market estimate of over US$100 billion by 2020 in the US alone, as per a report by BB Biotech. That means growth of 10 percent per year compared to just 4 percent growth per year in the pharma industry.

“Among the various segments of the healthcare industry, the biotech sector is well positioned to sustain its dynamic growth during the years ahead thanks to its power of innovation. The biotech sector’s growing upside potential is also being fueled by its research priorities,” the report states.

A US Department of Commerce report further explains that the line between biotech companies and the pharmaceutical sector is becoming less clear. Biotech often seeks novel drugs or therapies in areas of interest, so the research and resulting products bring the two industries closer and closer.

A Global Market Insights report states that the industry will soar past US$775 billion by 2024 due to increasing healthcare costs. However, the report states that developments and progress in a number of biotechnology segments should help ease the burden of these conditions. Additionally, innovations including the growth of human organs and meats as well as novel biotechnological products will catapult business growth.

According to Technavio, chronic illnesses such as diabetes and cancer have led to a surge in demand for molecular diagnosis, cell therapy, immunotherapies and biotechnological products to make diagnoses.

Technavio’s report further states that biopharmaceuticals and immunotherapies coupled with technological advancements and lab operations could potentially become the healthcare industry’s core in the future, which could certainly continue fueling investor interest.