Investment Institute

Biotech: How strong tailwinds could support a growing opportunity set

  • 19 October 2022 (7 min read)

  • COVID-19 vaccines and antivirals helped boost biotech revenues by 35% in 2021 from five years before – but we believe the sector has a lot more to offer beyond the pandemic
  • Oncology and neuroscience are among the areas seeing exciting developments, while long-term demographic trends provide further support to the industry
  • The sector offers considerable long-term growth potential alongside defensive characteristics - a rarity in today’s uncertain economic environment

Biotech firms took centre stage during the height of the COVID-19 pandemic, thanks to the development of lifesaving treatments and vaccines – but their time in the spotlight is far from over.

Revenues at publicly listed biotech companies rose 35% to $216.7bn in 2021 from five years before – according to consultancy EY – largely driven by COVID-19 vaccines and antivirals.1

But biotech’s expansion is also being underpinned by a near doubling of investment in research and development (R&D), to the tune of $88.6bn from $45.7bn five years earlier.2

The US regulator for the sector, the Food and Drug Administration (FDA), approved 63 new drugs in 2021, compared to 35 in 2016 – and there are currently over 6,000 drugs in active development.3

What’s more, all of the top 10 biggest selling drugs in 2021 were biotech drugs.4

Disruptive tech

No longer considered just a part of the broader healthcare industry but an investible sector in its own right, biotech is filled with cutting-edge R&D, innovation and disruptive technology.

Biotech is disrupting the way that drugs were traditionally made, with the advent of messenger ribonucleic acid (mRNA)-based therapies, for example, heralded as a game-changer. A recent example is that both the Pfizer-BioNTech and Moderna COVID-19 vaccines use mRNA, a tool that essentially teaches cells in the body to create an immune response to the virus.

Biotech firms have continued innovating as new variants of COVID-19 have emerged. In August, the UK became the first country to approve Moderna’s vaccine that tackles both the original COVID-19 strain and the later Omicron variant.5

We are seeing a growing number of companies moving into mRNA, including larger drug companies acquiring those with the technology.

For example, French pharmaceutical group Sanofi bought biotech firm Translate Bio in 2021 to accelerate its vaccine development and is aiming to “unlock the potential of mRNA in other strategic areas such as immunology, oncology and rare diseases”,6 after an initial 2018 collaboration.

In 2022, German drugmaker Merck bought Exelead, a specialist in injectable formulations that are a key element in mRNA vaccines.7

Investing in companies developing or using disruptive technologies can be appealing as these companies are often making breakthroughs and are at the forefront of medical progress. When successful, these companies can potentially offer compelling equity investment returns.

Defensive characteristics

Alongside the potential for growth, we think biotech business models can offer certain defensive characteristics. Commercially they are typically less dependent on economic cycles as there will always be a need for medicines and healthcare, as well as breakthrough drugs to treat existing or new conditions. We are seeing this now as biopharma companies report robust quarterly financials in more challenging economic conditions.

Biotech firms also benefit from intellectual property protection – drugs are patented so benefit from a lack of direct competition at launch.

It can be argued that barriers to new companies entering the sector aren’t prohibitively high at the development stage – but many early-stage pipeline products will unfortunately fail. So active investment managers need to construct a diversified investment strategy investing in companies, technologies and products which they believe are most likely to succeed. We analyse the drugs in development, how they work, why they should or should not be successful clinically and the commercial opportunity. This is combined with a view on the management team, while valuation underpins our investment process.

The sector’s strong long-term fundamentals are being supported by several structural shifts we are witnessing in demographics and lifestyles. Populations are ageing – the share of the global population aged 65 and over is expected to rise from 10% this year to 16% in 2050.8  This means the healthcare market is likely to grow, while the prevalence of chronic ‘lifestyle’ diseases, such as heart disease and obesity, is also increasing.

A supportive regulatory environment

The trend over the last few years is an increasing rate of regulatory approvals, particularly in the US. The FDA and other global regulators continued to approve new therapies even during the COVID-19 pandemic. In fact, regulators sped up their approval processes during the height of the pandemic, to get urgent COVID-19 vaccines and treatments onto the market as soon as possible.

Moderna’s vaccine was able to progress from understanding the genetics of the virus to human trials within a record 63 days, while Pfizer/BioNTech’s was the first authorised vaccination given – to 90-year-old British grandmother Margaret Keenan – less than a year after the first case of the disease was diagnosed.9 Historically and in more ‘normal’ times, the fastest a new vaccine had been developed was four years – for mumps, in the 1960s – and a typical vaccine could take 10 to 15 years.10  11

This ability to speed up assessment and approval timetables, without compromising safety, is something that will likely remain for new drugs to treat diseases and conditions with no other options. It is likely to be a benefit to the sector going forwards when there is a pressing need for a new treatment.

For example, the FDA recently granted accelerated approval to Seagen and Genmab’s Tivdak, a new type of cervical cancer treatment, after early-stage clinical trials gave strong results.12

Exciting therapeutic areas of focus

Oncology is a particular area where we have seen exciting developments. Trials of cancer treatments rose 56% in 2021 from five years before, while cancer medicine spending stood at $185bn globally last year and is expected to reach more than $300bn by 2026, according to research and analytics company IQVIA.13

There has been a huge advance in the understanding of genetics and the causes of cancer, leading to more accurate and targeted treatments: Oncology was estimated to account for around 30% of the product pipeline for the broader pharmaceutical industry in 2020.14

Genetic medicine, which targets diseases caused by a patient’s genetic code and can include treatments where deleterious genes are edited or replaced, has also seen major breakthroughs in recent years. We have particularly seen this in serious but less common conditions such as beta thalassemia, spinal muscular atrophy and inherited retinal diseases that have a significant impact on patient outcomes – and we view this as another potential area for investors to consider.

We would also highlight neurology and neuroscience – broad disease areas that include schizophrenia, depression, epilepsy and Alzheimer’s disease. These are areas in dire need for new treatment options and we are starting to see some positive pipeline developments. Most recently, for example, Eisai and partner Biogen reported compelling headline clinical data for a potentially disease-modifying Alzheimer’s treatment. We anticipate late-stage data from Roche and Eli Lilly over the coming year too. These drugs – if effective – are likely to represent the first entries into a market opportunity that could potentially be one of the largest within biotech.

We are passionate advocates that the expertise across basic science, technology platforms and drug development have, and will continue to have, meaningful positive impact on the lives of patients. From a commercial perspective, investors will need to pay attention to the evolving regulatory landscape in the US – this summer’s Inflation Reduction Act included provisions to lower prescription drug costs while in September, President Joe Biden launched a new initiative to encourage biotech research and production in the US. Meanwhile, global access to medicines needs to be given more thought.15  16

However, it is our view that high-efficacy, safe drugs will always have a material commercial opportunity as there are so many diseases and therapeutic areas where new products are desperately needed and, sadly, patient numbers continue to increase. Companies with innovative products to fill this unmet medical need are likely to present an exciting long-term potential opportunity for investors.

  • SG93IGRvIGJpb3RlY2hzIHN0YXkgdGhlIGNvdXJzZSBpbiB1bmNoYXJ0ZWQgd2F0ZXJzPywgRVksIEphbnVhcnkgMjAyMg==
  • QmV5b25kIGJvcmRlcnM6IEVZIGJpb3RlY2hub2xvZ3kgcmVwb3J0IDIwMjIgfCBFWSAtIFVT
  • QmV5b25kIGJvcmRlcnM6IEVZIGJpb3RlY2hub2xvZ3kgcmVwb3J0IDIwMjIgfCBFWSAtIFVT
  • VGhlIHRvcCAyMCBkcnVncyBieSB3b3JsZHdpZGUgc2FsZXMgaW4gMjAyMSwgRmllcmNlIFBoYXJtYSwgTWF5IDIwMjI=
  • Q292aWQ6IFVLIGZpcnN0IGNvdW50cnkgdG8gYXBwcm92ZSBkdWFsLXN0cmFpbiB2YWNjaW5lLCBCQkMsIEF1Z3VzdCAyMDIy
  • U2Fub2ZpIHRvIGFjcXVpcmUgVHJhbnNsYXRlIEJpbzsgYWR2YW5jZXMgZGVwbG95bWVudCBvZiBtUk5BIHRlY2hub2xvZ3kgYWNyb3NzIHZhY2NpbmVzIGFuZCB0aGVyYXBldXRpY3MgZGV2ZWxvcG1lbnQsIFNhbm9maSwgQXVndXN0IDIwMjE=
  • RGVmaW5pdGl2ZSBBZ3JlZW1lbnQgdG8gQWNxdWlyZSBFeGVsZWFkIHdpbGwgU3RyZW5ndGhlbiBNZXJja+KAmXMgQ0RNTyBPZmZlcmluZyBmb3IgbVJOQSwgTWVyY2ssIEphbnVhcnkgMjAyMg==
  • V29ybGQgUG9wdWxhdGlvbiBQcm9zcGVjdHMgMjAyMjogU3VtbWFyeSBvZiBSZXN1bHRzLiBVTiBERVNBLCBKdWx5IDIwMjI=
  • VmFjY2luZSBEZXZlbG9wbWVudCwgVGVzdGluZywgYW5kIFJlZ3VsYXRpb24sIEhpc3Rvcnkgb2YgVmFjY2luZXMsIFRoZSBDb2xsZWdlIG9mIFBoeXNpY2lhbnMgb2YgUGhpbGFkZWxwaGlhLCB1cGRhdGVkIE1heSAyMDIy
  • T25jb2xvZ3kgRHJ1Z3MgTWFya2V0IFNpemUsIFNoYXJlICZhbXA7IENPVklELTE5IEltcGFjdCBBbmFseXNpc+KApiwgRm9ydHVuZSBCdXNpbmVzcyBJbnNpZ2h0cywgQXVndXN0IDIwMjA=
  • SG91c2UgcGFzc2VzIG1hc3NpdmUgY2xpbWF0ZSwgdGF4IGFuZCBoZWFsdGggYmlsbCwgc2VuZGluZyBCaWRlbiBhIGNvcmUgcGllY2Ugb2YgaGlzIGFnZW5kYSB0byBzaWduLCBDTkJDLCBBdWd1c3QgMjAyMg==
  • QmlkZW4gdG8gbGF1bmNoIG5ldyBzdXBwb3J0IGZvciBVLlMuIGJpb3RlY2ggcHJvZHVjdGlvbiwgQ05CQywgU2VwdGVtYmVyIDIwMjI=

Related Articles


    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales, No: 01431068. Registered Office: 22 Bishopsgate, London, EC2N 4BQ.

    In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    © 2022 AXA Investment Managers. All rights reserved

    Back to top