Biotech is one of the most innovative and fast-changing sectors of the stock market, with lots of areas where investors can find value.
It can be a tricky sector to define as the term is so broad. Biotech initially referred to firms using what we know about biology to help treat diseases. But now it's expanded into a more capital markets definition where many emerging, developmental stage companies that combine tech and biology are lumped together.
Biotech firms have long laboured under the unfair characterisation that they are all small, risky, unprofitable, and always going under.
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But in the latest episode of the MoneyWeek Talks podcast, Ailsa Craig, fund manager of Schroders’ International Biotechnology Trust, tells Andrew Van Sickle, editor-in-chief of MoneyWeek, that this is far from the truth.
Craig suggests this prejudice may come from a time when many biotech firms were listed in London and failed. However, across the pond in the US, many of these firms have been great successes and some are even larger than well-known pharmaceutical companies.
“For example, Gliead and Amgen, are hundreds of billions in market cap. Glauco is $100 billion. So they are very much in the ‘big pharma’ pack, but are still named and classified as biotech for legacy reasons. So over in the US they have matured.”
“Many companies are still in clinical development – which we would call ‘white coat’ biotech – but many companies are mature, cash flow generating, high growth healthcare companies.”
At the same time as many biotech firms are now maturing, big pharma firms are also finding that patents for their drugs are running out. As the larger pharmaceutical companies are scared of losing revenue, they need to find new drugs to sell. This presents a tailwind for biotech.
Craig said: “Pharma is facing a wave of patent expiries much larger than we've seen before. Hundreds of billions of dollars in sales are going off patent in the next two to five years.
“They've got a problem – their internal R&D [research and development] productivity isn't great, so they're looking to biotech companies to fill that void of sales.”
For more on biotech, the future of weight-loss drugs, and how AI can impact the sector, listen to or watch the full episode of MoneyWeek Talks wherever you get your podcasts.
About the podcast
MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.
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