In recent years, biotech and pharma companies have been among the best performing FTSE-listed companies. AstraZeneca, the jewel of the FTSE 100, is up 12% over 12 months and 95% over five years.
Nonetheless, I believe biotech and pharma will continue to be a driving force for the index, as well as other indicies such as the S&P 500. Here’s why.
A quantum leap forward
We are currently witnessing a quantum leap forward in biotech and pharma due to several groundbreaking developments and innovations that have converged to accelerate progress in these fields. These include:
Gene therapy: This has made significant strides in recent years, offering the potential to treat a wide range of genetic disorders at their root cause. CRISPR-Cas9 technology, for instance, has revolutionised gene editing, making it more precise and accessible. This has opened avenues for developing therapies for conditions that were previously untreatable, such as certain inherited genetic diseases. While the most prominent gene therapy developers, like CRISPR Therapeutics, are listed in the US, FTSE companies collaborate and the likes of AstraZeneca and GSK are primed for acquisitions.
mRNA technology: This vaccine technology, as showcased in certain Covid-19 vaccines, has demonstrated its effectiveness and versatility. It allows for the rapid development of vaccines against various infectious diseases. Beyond vaccines, mRNA technology holds promise for treating a range of diseases, including cancer and autoimmune disorders, by instructing cells to produce specific proteins. GSK is among FTSE companies working with mRNA technology.
AI and machine Learning: Artificial intelligence and machine learning are transforming drug discovery and development. These technologies can analyse vast datasets to identify potential drug candidates, predict their efficacy, and optimise clinical trial designs. AI-driven drug discovery significantly speeds up the process and reduces costs. British company Exscientia is at the forefront of the sector, although its falling share price could leave it vulnerable to takeovers.
Cash on hand
While this is not universally the case, there are a handful of biotech and pharma firms with a lot more cash on hand than usual. One reason is vaccine sales during the pandemic. Just look at Moderna, almost unknown before the pandemic, today it has $3.8bn in cash.
Equally, several prominent companies operating in the above areas IPO’d during the pandemic. With interest in medical stocks high, this allowed them to raise plenty of capital for research and development. As such, mid-cap companies like CRISPR therapeutic have $1.7bn in cash.
Having cash readily available allows medical companies to fund ongoing research and development efforts without relying solely on external financing, such as loans or investments. This autonomy in funding ensures that critical projects can continue uninterrupted.
Moreover, clinical trials are an integral part of medical research, but they are expensive endeavours. Cash reserves enable medical companies to initiate and sustain these trials, which are essential for bringing new therapies to market.
Generational opportunity
There is so much modern medicine is yet to cure. From dementia to cancer, the potential for change is enormous. Personally, I believe we’re witnessing a quantum leap forward in technology that can deliver functional cures that eventually can become globally accessible.
