How the biotech industry works
Giant pigs and biodegradable sneakers
Yuriy Filipchuk, NV Business
Agriculture and industry are now considered the most promising areas: according to estimates, in the next five years, the first will increase to $36.4 billion, and the second to $274 billion
In 2011, investor and founder of the a16z (Andreessen Horowitz) fund Marc Andreessen stated: "Software is taking over the world. We are now in the midst of a dramatic shift in which software companies will capture a large share of our economy."
And it was really like this: in every industry, you could find a leader who was betting on software. Amazon was the biggest seller of books at that time, Spotify and Apple's iTunes were music companies, and game developers dominated the entertainment industry.
8 years have passed, and the situation, at first glance, has not changed much. The same Amazon, Apple and Spotify have only strengthened their positions, and new "stars" have appeared in many industries. But the Andreessen Horowitz Foundation is confident: now biology comes to the fore. This is no longer an empirical science, but an engineering discipline. Previously, in this area, we used tools that we created ourselves, but then we learned to use the mechanisms of nature itself. A person can literally program the body and create, for example, a bacterium or cells capable of fighting diseases.
Features of Biotech
The direction of biotech involves the use of processes of living organisms to create commercial products. It is important to separate concepts here. Humanity has been developing in the field of biology for a long time, but the invention of beer, for example, belongs to long–standing biotechnologies, and DNA manipulation is a modern biotech industry.
Today, biotech companies and startups are mainly focused on four industries that have their own names.
1. Red biotech is healthcare and medicine. The field includes diagnostics, treatment of diseases and pharmaceuticals. Companies, for example, find genes and proteins that are associated with specific diseases and create medicines for them. The approach allows us to develop medicines for a variety of cases. Currently, most drugs are being developed for the treatment of oncological, neurological and infectious diseases. Active work is also underway on medicines for diseases of the endocrine and cardiovascular systems.
The most promising direction in red biotech is oncopathology therapy.
Drawings from the 2019 Emerging Therapeutic Company Trend Report.
2. Green biotech is agriculture. Here the approach is a little different. Humanity has been manipulating crops and livestock for a long time to increase the yield and quality of the final product. Bioengineering has proposed a similar but more effective method. Now genetically modified products have become the norm, not only from agricultural crops, but also from animals.
An example of this approach is the startup Beyond Meat, which recently entered the Ukrainian market. The company produces vegan meat using, for example, the protein of peas, rice and munga beans. Beyond Meat is able to imitate the taste of chicken, beef and pork without using animal meat. There is also a reverse example: in China, scientists use technology Crispr is for breeding giant pigs that grow much faster than ordinary representatives of the species and tolerate winter better.
3. White and blue biotech – industrial sector and marine environment industry. Agriculture and industry are now considered the most promising areas: according to estimates, in the next five years, the first will increase to $36.4 billion, and the second to $274 billion.
Cellular biologist Olga Maslova considers uneven progress in the industry to be the main feature of biotech. At the same time, he emphasizes that the sphere has high risks for investments, and research and development require very expensive premises, equipment, specialists and time for testing. But at the same time, biotech is extremely promising, because it covers the most important areas of human life, including health.
Market development and its current position
The birth date of the modern biotech industry is considered to be 1973. It was then that American scientists Herbert Boyer and Stanley Cohen first changed the DNA of a bacterium by combining it with genes of another sample. In 1976, Boyer, along with venture capitalist Robert Swanson, founded the private biotech company Gentech, which four years later became the first company in the field to go public. So the biotech industry began to commercialize.
Since then, the sphere has been actively developing: if 35 biotech companies entered the stock exchange in 1991, then in 2000 there were 63 of them only in the USA - a record at that time. The average amount of funds raised has also increased, from $20-30 million to $85 million. Now the indicators on the market remain about the same: over the past five years, an average of about 70 firms have entered the IPO every year, according to data provided by our company. At the same time, 2018 was a record year for the total number of investments through this procedure – $8.1 billion.
The largest area of the industry remains red biotech, which covers the diagnosis of diseases and treatment. This market is estimated at $314 billion. Biotech companies use DNA data to quickly identify a patient's illness – for example, malignant tumors or sexually transmitted diseases.
In August 2019 , binx received permission from The US Food and Drug Administration (FDA) has launched sales of a portable device for diagnosing chlamydia and gonorrhea in women – the most common sexually transmitted diseases. Binx promises that the device will give a result within 30 minutes, which will allow you to determine the diagnosis and get an appointment for treatment in one appointment with a doctor.
Another direction of red biotech is gene therapy. Here, companies are developing drugs that modify human DNA and thus fight the disease. Currently, 17 drugs for cell and gene therapy have been approved on the US market. One of them, Luxturna, treats a rare retinal disease that gradually leads to vision loss and blindness. Another medication, Provenge, is intended for the treatment of prostate cancer.
The largest players in the sphere are the companies Jonson & Jonson, Roche, Novartis. These are large corporations with hundreds of thousands of employees and sales of several tens of billions of dollars. With the help of biotechnologies, they create medicines – not necessarily for gene therapy – that treat a variety of diseases: from heart problems to disorders in the nervous system. According to the data provided by CYFRD, there are currently about 7000 similar drugs in the industry at various stages of development.
Unlike other verticals, in biotech, a very small amount of investment is raised by companies with a ready–made product that has been put on the market - it has long been divided among the old players. Investors are betting on companies whose product will be able to pass clinical trials and immediately become the leader of the newly created market.
The second largest direction of biotech is white biotech, or the industrial sector. In a market estimated at $248 billion (by the end of 2017), companies use microorganisms and enzymes to create industrial materials – from energy carriers and biofuels to plastic. Avantium, for example, creates renewable materials for Coca-Cola and Danone packaging. German AMSilk extracts protein from spider silk, which can be used in a variety of fields. The company has already agreed with Adidas to create biodegradable sneakers and with Airbus to develop materials for aircraft construction.
Two other relatively small areas of biotech are agriculture (green biotech) and aquaculture (blue biotech). The first is known for the development of genetically modified products, this market is $32.9 billion. Here, companies modify the DNA of crops to increase yield, improve its quality and help adapt to environmental conditions. Among the largest are, for example, Monsanto, Syngenta and Bayer.
In the field of aquatic biotechnologies, which is estimated at $3.5 billion, marine organisms are considered as a source of more diverse biomolecules – they are used in food additives, medicines and cosmetics. Norwegian Aker BioMarine, for example, creates food products saturated with healthy Omega-3 fat from krill – small crustacean animals similar to shrimp. Another market leader, Marinova, produces fucoidan brown algae extract, which is then used in food, pharmaceuticals and skin care products.
We see that investments in the sphere are growing at the same pace as the entire venture capital market. If in 2013 they amounted to $5.2 billion, then in 2018 – $17.5 billion. However, the market is very hot – the last couple of years have been accompanied by large rounds of clinical trials, especially in the field of oncology. Series A in this market is $30-50 million for the first stage of clinical trials. After that, a pre-IPO takes place, where about $ 150-200 million is collected to complete the tests and get FDA approval. Investors expect that with a cancer drug, the effectiveness of which has been confirmed, the startup will immediately conduct a full-fledged IPO on a space assessment.
The growth of investments in the sphere was also facilitated by the improvement of the technologies themselves: DNA sequencing, for example, became ten times cheaper, and neural networks and machine learning made it possible to automate many processes.
In addition to the USA, startups from Asia attract the most investments in the field of red biotech.
Challenges and prospects of the industry
All such discoveries and products do not appear immediately: biotech companies spend years on research, development and testing - and this is the main feature of the industry. According to estimates provided by the Biostars resource, this process usually takes 8-10 years. And the result here is not always predictable: the product can be both a historic breakthrough and a resounding failure.
According to the PhRMA Association, pharmaceutical companies alone spent more than $71 billion on research and development in 2017. And not every dollar invested leads to concrete results. According to IQVIA, only 11.4% of biotech products have successfully passed the path from the first phase of testing to regulatory approval in 2018.
According to entrepreneur Daria Loseva, co-founder of biotech startup MyWayDNA, projects from the industry combine common difficulties at early stages: it is necessary to minimize the risks associated with the product and find understanding investors and partners who have yet to prove the efficiency of the technology, its relevance in the future.
Despite all the difficulties, analysts predict the rapid growth of the biotech sector. According to Global Market Insights, by 2025 the market will be estimated at $729 billion, which is almost a twofold increase compared to 2018. At the same time, the average annual growth rate (CARG) will reach 8.3%.
The areas of agriculture and the industrial sector will grow the fastest – by more than 10%. All thanks to a wide range of technology applications, as well as reducing the cost of production. Marine biotechnologies (9.6%) and the healthcare sector (6%) will develop a little slower.
Andreessen Horowitz believes that now the biotech sphere resembles the IT industry of 50 years ago. This means that soon the industry will make a rapid breakthrough and will become part of every direction of our life – from the treatment of diseases to the materials we use and the food we eat.
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