Millennium Post

Will the boom last?

IF ONE trawls through the vast, virtual world of stock market investors and analysts, one thing strikes the eye: the frequent appearance of the word “biotech”. Dig further into any posting on biotech and the computer screen gets almost deluged with recommendations for buying shares of biotechnology companies. By the time one presses “quit”, the message hits home overwhelmingly: the global biotechnology industry is booming, and in an unprecedented way.

The news is like soothing balm for the recession-hit world economy. Every new drug discovery or drug approval not only draws cheers from millions of victims of debilitating diseases but also adds value to biotechnology companies. Since the past two years, such discoveries and approvals are happening at an unusual pace, particularly in the US market. One also cannot ignore the lengthening list of generic drugs, mostly produced by small companies. This has, as analysts point out, prompted major drug companies to acquire smaller ones to retain their market share. In a complex play of scientific progress and market forces, the biotechnology industry is recording growth that can rival the information technology industry boom of the 1990s.

With most conventional sources for investment being looked upon with recession-triggered suspicion, biotech has arguably emerged as a preferred investment sector. Money is pouring in and analysts are sure the sector will maintain its blue chip status in the coming years as well.

The boom made global headlines this January during the J P Morgan Healthcare Conference, an annual event that provides a debating forum for biotechnology and health investors. Over four days, some 400 biotech companies cheered the growth, both in investment and market capitalisation of the industry. The first presentation by Robert J Hugin, chief executive of Celgene, one of the largest biotech firms of the US, captured the euphoria. “It is an incredibly exciting time for our industry. This is not hype and smoke and mirrors,” Hugin said.

The recent financial performance data from the US, which controls the global biotechnology market, supports this claim. To begin with, biotechnology companies have performed much better than other companies in terms of return on share and market capitalisation in the past six to seven years. In 2014, some 110 biotechnology companies were listed in the US to raise $9 billion from public and financial institutions.

The NASDAQ Biotechnology Index has been up 177 per cent in the past three years, compared to a 52 per cent increase in the Standard & Poor’s 500, the American stock market index based on market capitalisation of 500 large companies. In 2013, the NASDAQ Biotechnology Index rose 35 per cent. One can gauge how big this growth is from the fact that the growth rate was only 11 per cent for the benchmark Standard and Poor’s 500. In January, some 10 healthcare companies planned to go public on the NASDAQ.

According to multinational management consultant network PricewaterhouseCoopers, venture capitalists pumped $5.97 billion into biotech companies in 2014. This was a 29 per cent increase over 2013. The year saw all sorts of investors—retail, venture capital trusts, emerging market vehicles—investing in biotechnology stocks. They reported more than the expected returns, highly unusual in times of market uncertainty. This year, it seems, the industry is going to be much more lucrative, both for investors and buyers. According to journal BioCentury, till February, the biotech industry has already raised $1,819 million, taking the total investment in biotechnology up to $14.9 billion.

This growth has come almost after a decade. Biotech remained dormant and off the popular investment radar after a market crash in 2000. A few months before the crash, it was the prime choice of investors, riding on promises of progress in human genome science and a boom in drug discovery. Interestingly, the present boom is led by small- and mid-sized bio-pharma companies.
In India, the world’s 12th biggest biotechnology economy and having the second highest number of US Food and Drugs Administration (USFDA) - approved plants, the industry is not only excited at the revival in the US but also about its domestic prospects. In February, the 15th edition of Bangalore India Bio 2015, the country’s annual biotechnology show by industries, noted the progress. “India’s biotechnology economy will be more than $100 billion by 2025, which will make it level with the information technology industry,” says P M Murali, president of Association of Biotechnology Led Enterprises (ABLE), the country’s only biotechnology industry association.

The Indian bioeconomy grew to $4.3 billion at the end of the 2013 financial year, up from $530 million in 2003, according to BioSpectrum, a widely-read trade publication in India.

Though concentrated in Hyderabad and Bengaluru, there are units sprouting across the country; currently some 350 companies are in operation. The bio-pharmaceutical sector, which includes vaccines, medical devices and stem cells, is the main driver of India’s biotechnology growth, generating close to 63 per cent of the industry’s total revenue in 2013. “Companies are doing well and the sector’s future prospects look bright. Many new start-ups are coming up in the Bengaluru cluster. This is really a good time and there is more innovation happening on the ground now,” says Murali.

Kiran Mazumdar-Shaw, the CEO of Biocon, India’s first biotechnology company, says, “If we compare the Indian biotech industry with its global counterpart, we find that we are going there in terms of capability but as far as investment is concerned, China and America are far ahead. India has a huge market. Going by this, the sector will become only bigger.” Biocon was in news last August when it launched Alzumab, an anti-CD6 antibody for the treatment of psoriasis. The global market for psoriasis drugs is expected to reach $8 billion by 2016. This has excited the attention of investors who look forward to lucrative returns from biotechnology. “We had the stars aligned very well for us a decade ago, which we did not capitalise on due to ambiguous regulatory policies and knee-jerk reactions. Hopefully, the lessons learnt from the past will now be used to accelerate growth in the health and agriculture sector,” says Murali.

The biotech economy boom is definitely not a “gold-rush” kind of phenomenon where desperate investors chase a success story. Since the crash in 2000, many developments have happened in drug science and policy, that are fuelling the biotechnology industry’s growth. It is not just a demand-supply phenomenon. There is an overarching change in drug policy in various countries and a push for freeing drugs from the patent regime. This is leading to a major realignment in the biotech industry in terms of investment. 

But the primary reasons for the current boom are: a spurt in new drug approvals in the US, discovery of new drugs for diseases like cancer, hepatitis C and cystic fibrosis, and a major phase of drug patents expiry. Besides, recent progress in technology and increased investment on research and development (R&D) have lowered gestation period of a drug—from research level to trial to retail phase—drastically. DOWN TO EARTH
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