Welcome to the 'Third Revolution'

This country has a large and rapidly increasing population of retirees. But we should be thankful that as the population greys, we won't face the kind of massive healthcare burden that they do in the United States.

America's pensioners are placing huge demands on the healthcare budget. The US government spends close to $4,437 per person a year on healthcare, compared to the $2,919 our government spends here. And while improvements have been made in the treatment of heart disease and cancer, other afflictions such as diabetes and Alzheimer's are becoming more prevalent. That will only add to the burden on the rest of the population.

Anything that can be done to improve the health of the elderly population will have a huge economic benefit. According to economist David Bloom, between 1970 and 2000 gains in life expectancy accounted for $3.2trn per year of national wealth, while a 1% reduction in cancer mortality was worth cumulative savings of $500bn to the health economy.

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The good news is that there are now radical advances being made in biotechnology that could help resolve this problem. This is part of a historic change that the Massachusetts Institute of Technology (MIT) is calling the Third Revolution'. And in today's Penny Sleuth I want to explain why this could be the great story of our time.

A new kind of science

What is the Third Revolution'? Well, MIT says we are living through a new era of innovation, especially in the field of medicine. This revolution promises to bring about radical changes in standards of living as we benefit from the huge advances that are being made in biomedicine.

This revolution is summed up in just one word convergence.

Convergence describes a new approach to innovation, one in which academic disciplines that have traditionally worked quite independently start to combine forces. In short, convergence is the coming together of engineering, physical sciences and life sciences. And countries all over the world think that this could hold the key to economic prosperity.

According to economist and Nobel laureate Robert Solow, the growth of the US economy in the early 20th century was largely attributable to innovation. He demonstrated that gains from better use of labour and capital explained only a small part of US economic growth; the most important driver was what he called "technical change".

Policymakers paid little attention, but the information technology revolution has changed all that.

The industry that emerged from Silicon Valley a decade ago has created wealth, provided highly paid jobs and given the USA global leadership in a huge and vital industry. According to MIT, this industry is now maturing, and it reckons the next wave will be led by biotechnology.

From IT to biotech

Already in the last 50 years there have been two revolutions in the biological sciences. The first, inspired by the discovery of DNA by James Watson and Francis Crick in 1953, involved the use of molecular and cellular biology to understand cells and disease.

In the 1970s this led to the development of genetic engineering, which saw DNA taken from different organisms and then combined. This was given a great boost by the first mapping of the human genome in 2003, and has inspired a flurry of activity as researchers try to link genetic patterns to health and disease.

While this has been going on, there have been very rapid advances in other disciplines such as information technology, materials, imaging, nanotechnology, optics and quantum physics, coupled with advances in computing, modelling and simulation. Convergence' combines these disciplines with the living world of biology.

We can find one cell in a billion

Already we are seeing what this convergence can bring. Advanced DNA sequencers have cut the cost of full genome sequencing from billions of dollars to under $10,000. The combination of computer science, physics and engineering with molecular and genetic biology is helping us to understand how our immune system responds to harmful pathogens.

OCT (optical coherence tomography) scanning technology that can record 236,000 lines per second is being used to make highly accurate three-dimensional images of the eye, offering hope for better treatment of disabling eye disease.

Researchers are using nanoparticles to transport time-release anti-cancer drugs directly to cancerous cells. A team led by Francesco Stellaci has found that gold nanoparticles coated with alternating bands of neutral and negatively charged molecules can penetrate the protective membrane of a cell without killing it. By accurately targeting cancerous cells without damaging others this could improve cancer treatment.

And physicists, engineers and biologists have combined to produce a chip that can detect cancerous tumour cells, which can be as rare as one cell in a billion normal blood cells. Their identification can enable the early diagnosis of a cancer threat and also measure the impact of treatment.

How to power economic growth in the next decade

I expect money to pour into biotechnology. The USA and other countries around the world are jumping on to the biotechnology bandwagon. They want to stimulate a domestic biotechnology industry that can improve public health, while developing new technologies and therapies that can sell globally. For example, China's latest five-year economic plan prioritised biopharmacy, bioengineering, bioagriculture and biomanufacturing and all told the government is backing biotechnology with a massive $308bn budget.

The information technology revolution showed what can be done. Now by combining the knowledge of the physical with the living world the Third Revolution' can power economic growth in the next decade.

I really do believe this could be the great story of the decade. That's why I started the Red Hot Biotech Alert. And I will soon be opening my doors for new subscribers. In this newsletter, my mission is to bring my readers the most exciting developments in this new revolution from regenerative medicine to stem cell breakthroughs to personalised medicine. And there have been plenty of optimistic stories to write about. This year, for example, the Nasdaq Biotech Index has risen some 34%. That's a pretty impressive performance when you compare it to the 19% rise in the Nasdaq Composite, 11% on the Dow Jones and the pathetic 5% on the FTSE 100.

Watch this space.

This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.

Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.