Pharmaceutical companies are investing in the biotechnology industry.

Innovative drugs from the biotechnology industry are dominating the healthcare market. And the trend is growing. This creates opportunities, not just for investors. Pharmaceutical companies are also making use of biotechnology knowledge. For instance, the immune system of the naked mole rat is contributing to cancer research.

The biotechnology industry is inspired nature

The field of biotechnology gains its insights for drugs from nature. As part of aging and cancer research, for example, the immune system of the naked mole rat has been studied. Its robust immune system largely prevents the development of cancer cells.

The manufacturing process for drugs is also based on reactions in biological systems: Medicines, unlike chemical drugs, are produced from living organisms – or rather their products, such as bacteria and enzymes. Everybody is familiar with products like antibiotics or vitamin B12. Another example are insulin shots for diabetics, which have used biosynthetic human insulin since 1982.

The proportion of drugs with biotechnology is high

There are many fields of activity in biotechnology, and they can be categorized into the subfields of microbiology (including microbial genetics), biochemistry, process engineering, and equipment manufacturing. The proportion of drugs that have a biological basis has risen sharply since the 1990s.This trend has blurred the boundary between pharmaceutical and biotechnology companies.

In contrast to pharmaceutical companies, pure biotech companies reinvest their cash flows into growth rather than paying dividends. In recent years, there has been a blending of chemically and biologically produced drugs under the same umbrella. An increasing number of pharmaceutical companies are achieving a relatively high share of their revenue from biological products.

Pharmaceutical companies are increasingly interested in biotechnology

When innovative teams of researchers develop gene therapies for conditions such as hemophilia, the value of their respective biotech company goes up. It’s no surprise then that, following in the footsteps of Novartis, Roche has now also invested in genetic and cell therapy: In late February of this year, it acquired US biotech company Spark Therapeutics for billions of dollars, thereby advancing its position in the field of biotechnology.

There is great demand for high-potential biotech companies, as pharmaceutical companies are under pressure to replace expiring patents for the top-selling medications with new ones. In-house research is insufficient. The acquisition of biotech companies fills this gap. This is one reason why many biotech companies with high-potential medical innovations are purchased by corporations in the last phase of clinical trials.


Mergers and acquisitions of biotech companies

Global Biotech M&A deal count and deal value for proposed, pending, and completed transactions.

Source: Bloomberg, Credit Suisse

Investors in biotechnology must expect price fluctuations

The time from the development of a drug to clinical trials and market launch may span years or even decades. At the same time, regulation by the respective authorities should not be overlooked. In extreme cases, a single drug can make or break an entire company. Biotech equities were among the biggest losers on the SPI in 2018, since they may be exposed to substantial market-, sector-, or company-based price fluctuations.

From an investor’s point of view, it is therefore worthwhile to rely on industry experts who are close to the biotech companies and the market, and can assess potential risks from clinical and regulatory processes, while also incorporating the strategic goals of large pharmaceutical companies in assessing the attractiveness of biotech companies as potential takeover candidates.

New drugs in Switzerland


drugs are launched on the market annually


of them are of biological origin

The biotechnology industry is likely to keep gaining influence

The world population is ageing. This is leading to a rising demand for medications. Seven of the world’s top-ten-selling drugs have their roots in the biotechnology industry. In recent years, an average of 30 new drugs have been approved in Switzerland, of which 20 were biologics. New antibiotics are set to be approved this year for patients who have developed resistances in addition to new innovative drugs to fight cancer.

The above underlines that biotechnology has a bright future. This is already reflected in sales figures, which have more than doubled since 2013, and the trend is set to continue. Experts also think that valuations are appropriate and that there is remaining potential for positive developments in earnings per share in the healthcare industry. A continuation of positive M&A activities is expected.


Global sales figures in US dollar since 2010 and forecast* until 2022

Source: B|B Biotech 2017

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