Biotech might beat inflation, offer hope for investors

With an alarming global inflation rate and businesses generating lower revenues, the economic situation is also affecting biotech investment.

But biotech is one industry that could provide an inflation hedge, giving investors a safe place to weather the consequences of an economic winter.

“The biotechnology sector is looking like one that has potential for explosive growth in the future,” says Nick Shipley, Executive VP and Chief Advocacy Officer at the Biotechnology Innovation Organization (BIO).

And with many saying we could be on “the brink of a biotech bull run,” the coming weeks and months could provide an opening for investors looking for mid-cap stocks and research opportunities in gene and cell therapies.

Bear market?

In the short term, biotech stocks might be facing their worst bear market in two decades, according to the Financial Times. As just one example, a top biotech stock like ITeos Therapeutics (ITOS) fell almost 50% from its 2021 high. Additionally, low vaccination rates in diseases like measles, make it hard for drugs to reach the people who need them more.

Meanwhile, climate change is driving up inflation. Supersized natural disasters could have a negative impact on biotech investments. Severe natural disasters can reduce the value of long-standing investments like labs and research facilities to nearly zero, impacting the financial health of any bioscience company.

Innovations could spur growth

But there’s hope for investment in the sector, as innovation can spur biotech growth, for the industry as a whole as well as individual companies.

In an interview with CNBC, Ester Baiget, CEO of Novozymes, says her company had been able to achieve 10% year-to-date growth as of August 2022: “We are in a good place with strong demand, strong volume growth and a continuous pull from sustainable solutions.”

Novozymes is a biotech company focused on reducing emissions from waste and providing green, biological solutions that allow companies to cut down on their carbon footprint. Their innovations “enable [customers] to reduce their yield, improve their CO2 emissions and produce healthier solutions for the consumers,” Baiget says. The Hong Kong-based company revealed it had formulated 13 new products from January to September alone including seven in Q3.

“Novozymes’ scientists work at a scale and speed that is truly impressive—continuously developing novel products and testing new ideas at a pace where 30% of sales comes from new solutions,” says Claus Crone Fuglsang, Chief Science Officer at Novozymes.

Another company, Amyris, a BIO member, is expanding its frontiers by focusing on innovations too. The company uses a bio-based alternative to the skincare ingredient squalene to make sustainable beauty products, with popular brands including Biossance. Just last month, it launched two new brands: Stripes, a skincare brand curated for menopausal women, and EcoFaboulous, which focuses on a younger audience.

Million-dollar funding rounds and a billion-dollar acquisition

biotech investment
Source: Crunchbase News

Another indication that the biotech industry is poised to do well is the success of funding rounds and acquisitions. Around 46 biotechs have raised at least $100 million in funding, according to Crunchbase data. A comparison of the first six months of 2022 with the previous years shows the pace of funding is “about $3.2 billion on average per month. In all of 2021, however, nearly $47 billion went into the space, an average of nearly $4 billion per month,” Crunchbase says. Still, these figures are impressive given the current economic climate.

Two companies, Eikon Therapeutics, and Ultima Genomics raised $600 million and $518 million in backing in January and May 2022 respectively, some of the biggest fundraising for a single company during the year. Ultima deals with low-cost genome sequencing, while Eikon deals with cell resolution that helps drug development.

Meanwhile, BIO member Johnson and Johnson announced its acquisition of Abiomed for about $16.6 billion in cash in November—a promising sign of the sector’s rebound.

Mental health a growth area

But it’s not just acquisitions and funding rounds that point to a bright future for biotech. A growing aging population is expected to lead to increases in some degenerative diseases in the future. Biotech companies that help people improve their quality of life by providing drugs to manage these diseases can expect growing demand.

One area where the need is likely to increase is neurology and mental health, for seniors and people of all ages.

Data from the CDC shows 1 in 5 Americans will experience a mental illness in a given year, and the World Health Organization has estimated that the rise of mental health disorders will cost the global economy $16 trillion by 2030.

“I don’t think that the standard of care in really any area of mental illness is sufficient. It’s really not something that we should be satisfied with from a patient perspective, a caregiver perspective, from a societal perspective,” says Andrew Miller, PhD, Founder and COO of Karuna Therapeutics. “So I think there are numerous opportunities. I think it’s really about understanding how to capitalize on some of the most recent discoveries and innovations and how we can apply those to the treatment of mental illness.”

Conferences provide a solid avenue to guide investing

In the first quarter of 2023, BIO is involved in two conferences that will provide opportunities for investors and biotech companies alike to find new partners and learn about what’s happening in the market from the experts.

In January 2023 in San Francisco, BIO will provide opportunities for partnering at JPM. Utilizing BIO’s One-on-One Partnering platform, investors and companies can meet small biotech companies and startups to potentially partner with. All meetings will be held physically or virtually via BIO’s proprietary partnering platform.

The second conference, the BIO CEO and Investor Conference, will take place in February 2023 in New York City. This conference is for c-level executives, investors and banking communities interested in shaping the future biotech investment landscape. Meetings, partnering and presentation sessions from 700+ companies will help you choose the best way to partner and where to partner. Learn more and reserve your place.

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