Prospects for investments in biotech

Why Biotechnology is the new IT

Pavel Volchkov, Head of the Laboratory of Genomic Engineering at MIPT, for Forbes

If you want to know which industries will become as attractive to investors in the future as IT is today, then there is one quick answer here: these are biotechnologies. They also appeared in the XX century, but they are developing a little slower. This is largely due to the fact that biotechnological tools are still in the process of being created and improved – this path is similar to what a computer went from a building-sized computer capable of only a couple of operations to its current state.

Biotechnologies still need time to improve, but despite this, billions of dollars are being invested in the industry, its "unicorns" are already appearing in it, and in the future 15-20 years the dam will finally burst, and we will witness the flourishing of biotechnologies. Let's try to figure out why people are already investing a lot of money in them today and what awaits us in the very near future.

What is biotechnology

Let's imagine that our body looks like a highly technological computer capable of performing extremely complex operations. At the heart of any computer program (algorithm) is a binary code consisting of the numbers 0 and 1. With this code, we can encode information, and then read it – play a sound or run a program. So, the genome is our hard drive filled with information.  The sequence of the genetic code is based on a four–digit code composed of nucleotide residues - adenine, thymine, guanine and cytosine, forming a DNA double-stranded sequence of nucleotide residues that stores genetic information. With DNA, information is read to single–stranded RNA - a kind of cache of our internal computer. And already through RNA, the body is able to synthesize proteins that meet certain body functions. DNA sequences encode certain proteins and carry certain functions in the body, and their modifications will lead to a change in the operation of the program – positive or negative for the body.

It turns out that in order to predict the features of the development of the organism, it is necessary to read the code. The determination of the order in which the nucleic acid residues go is called sequencing, from the word sequence – sequence. The development of the DNA sequence sequencing method made a real breakthrough in the development of molecular genetics and genetic engineering in 1976. Since then, sequencing technologies have been actively developing, and at the beginning of the XXI century, a new generation of NGS sequencing appears on the scene. At the moment, the undisputed leader in this field is the company Illumina.

Actually, sequencing is one of the most commercially attractive areas in biotechnology. Companies that invested in the development of sequencing technologies in the late 90s now receive up to 70% marginality. Modern NGS technologies have made it possible to sequence genomes in large quantities so that the information received does not have time to fully process, so the second important part of biotechnologies today is the analysis of the information received. Fortunately, recently, with the development of technology, big data analysis has become easier.

Biotechnology market

IT has much more parallels with modern biotech than it might seem at first glance. Information technologies did not appear by themselves, their heyday was preceded by fundamental discoveries in physics, physics of materials, computational mathematics and cybernetics. As a result, today IT is an area of "easy startups", from the emergence of an idea to making a profit in which very little time passes, and few people think about the work that has been done so far.

The situation with biotechnologies is similar, it's just that we are now at an earlier stage, when tools and programs are still being developed. Biotechnologies are waiting for the appearance of their "personal computer","only in our case it will not be an understandable mass device – we are talking more about a set of effective and inexpensive tools.

We can say that now the situation is similar to what it was in the 1990s in IT. Technologies are still developing and are quite expensive. For example, a complete sequencing of a person costs $1000. This is much cheaper than the $3.3 billion price of the Human Genome Project, but it is still incredibly high for the layman, and its use for clinical diagnostics at a broad level is still impossible. To do this, the technology needs to fall in price once again by 10 and improve its technical properties so that sequencing errors are leveled. There are no such powerful projects in biotech as Facebook yet, but Illumina, Oxford Nanopore, Roche are all extremely successful companies whose activities often resemble Google buying up interesting startups. And Nanopore, for example, became billionaires before they even entered the market, thanks to a combination of a good initial idea, management and success in attracting financing.

There are also small companies in the industry that corporations from the information world rather than from biotechnology are interested in buying. For example, Thomson Reuters bought Genego in 2010. Created by Yuri and Tatiana Nikolsky in the USA (with development in Russia), the company was engaged in creating a database of protein interactions, signaling pathways. This allows you to analyze the RNA sequencing data (the very "cache" of the organism), for example, before and after exposure to the drug. The resulting database combined the results published in articles from around the world for more than 30 years. The value of the transaction is unknown, but, according to my estimates, it is tens of millions of dollars.

Today, biotechnology is also a big data market, and this continues parallels with IT, which in this case already serves as a kind of tool for a larger and more complex biotech. Companies such as Editas Medicine (one of the creators of the acclaimed CRISPR/Cas9 genome editing technology) made their IP based on the results of sequencing genomic data of bacteria from open sources. They were far from the first to reap the benefits of the accumulated information, they were not even the first to discover the principle of operation of the CRISPR cluster, but it was Editas Medicine that created the biotechnological product. Today it is a company worth more than $1 billion.

And this is not the only business that will arise due to the analysis of existing data. Moreover, it cannot be said that there is a queue behind such data – there are already much more of them than can be analyzed, and there will be even more, because scientists do not stop sequencing. Unfortunately, the methods of analysis are still imperfect, so not everyone manages to turn the data into a multibillion-dollar product. But if we estimate the speed of development of analysis tools (hint: it is very high), it is easy to understand that in the future there will be much more companies that have noticed something interesting in big genome data.

Risks and benefits of investing in biotech

One of the successful investors in biotechnologies are the biotechnologists themselves, who have already made a fortune in such startups at one time and therefore can identify a promising idea at an early stage. Unfortunately, unlike IT, there are not very many such investors in biotechnology, so there are not enough very effective business people in the industry who throw money at any project that is more or less promising, in their opinion. All this overheats the industry and sooner or later leads to the collapse of large companies.

Why is this happening? To make a profit, an investor needs to predict which of the startups will make a profit in the future, and monetize their investments in time (as in the rest, not only biotech startups). As soon as reputable venture capital funds invest in a startup with a good idea, everyone else starts investing. The company is being inflated more and more, its revaluation is taking place. It is necessary to understand that based on the results of all investments, the company must create a product that it can sell. A biotech company, if it is not pure bioinformatics or analytics, as a rule, is not able to sell something quickly - very often it is a research story that remains research for a very long time.

As an example, Editas Medicine can be cited – a lot has been invested in them, and their product still needs to be done and done. There is a risk that one of the investors will not wait for the profit and will take the money. The departure of several players can provoke the death of the entire mechanism and investment. This is a reality that any biotech company needs to reckon with. The problem with any startup is that at first it's hard to find money, and then it's hard to avoid it; people continue to contribute money, although the size of investments exceeds expectations from the company. Biotech companies need to be given a sufficiently large credit of trust, that is, time for them to make a product – often it's a dozen years. The path to the final product can be long, but it is important to understand that this product will bring astronomical profits later.

For example, today, dividends are received by sequencing companies that have been developing since the 2000s. Companies based on data analysis and sequencing were created next – we can say that they are next and in line to receive large profits. The US government, for example, is still funding sequencing, but now not one person, but millions of people. This makes it possible both to improve the technology and to increase the amount of data. The fact that the technology is improving and getting cheaper allows us to accumulate data – thus the CRISPR/Cas9 technology I have already mentioned appeared.

Now bioinformatics and big data analysis in biotechnology is the hottest area for investment. Proper investment in companies from this area can give enormous benefits, but it is necessary to coordinate and calculate investments based on a potential product. It is important to analyze the project team and the investment group – whether it will be able to finish the job without being blown away. A good sign is an investment by large pharmaceutical companies – as a rule, this is a sign of stability and a signal to invest for other companies.

Why is this all

We have figured out what biotechnologies are and which companies work in them. It remains to understand the main thing – and why, in fact, is all this necessary? It seems that the genome can be decoded indefinitely, but there are no visible prospects from this. In fact, within 20 years we will be able to see the real results of all this movement in the industry.

One of the striking examples is agrobiotechnologies that are already engaged in genetic selection. This means that it will no longer be necessary to "manually" cross different species and see what happens; instead, you can determine which genomic combinations will lead to the desired result, i.e. a larger harvest.

Another important area of application is diagnostics. Companies engaged in diagnostics based on genomic data, metabolites, will come to the fore, diagnostics itself becomes more mobile. Large laboratories that deal with classical biochemical blood tests will have to sink into oblivion – the same analysis can be done using a test that does not exceed the size of a pregnancy test. The history of Theranos is indicative – although the startup turned out to be overrated, there is a huge interest in the field itself, and there are still a lot of such companies.  In addition, there are a lot of small firms like 23andme that do complex genetic analysis, but so far it is more entertainment, a kind of attraction that shows only a small fraction of what is possible.

Already, many pharmaceutical companies have appreciated the unique capabilities of recombinant proteins in the treatment of diseases. The next step is the development of gene therapy based on classical pharmaceutical companies. This will shift medicine towards eliminating the cause of the disease instead of treating the symptoms. Already, we are seeing a shift in the top ten best-selling drugs towards recombinant proteins and antibody-based drugs.

Can Russia become a biotech power

The main problem of biotechnologies in Russia is not a ban on GMOs, as it seems to many, but a large number of various bureaucratic barriers. This fact is also noted in the government. But even barriers can be adapted. Over the past 26 years, we have been developing under the pressure of reforms, constant changes in the rules of the game, and business needs stability and confidence that there will be no shocks. If Russian biotechnologies are not hindered, they will begin to develop. I would also like to note that an ill–considered desire to help, those ill-considered state investments, in fact, lead to the opposite result - subsidizing teaches companies that they will be supported by the state constantly. As practice shows, companies on state investments become ineffective. Healthy competition is needed everywhere, so initial contributions should come not even from the state, but from businesses, which should feel confident in the future, which we still have problems with.

The right thing for the state is to invest in creating an optimal environment for biotech. We have both minds and people with energy and a desire to create – it is important not to let this desire disappear.

Today biotechnologies are in a phase of intensive growth, but it is already possible to imagine the vector of their development. After all, the very meaning of technology will not change, just as it did not change after the advent of the computer: its idea in 1951 was not very different from the one behind modern computers. Only functionality and performance differ significantly. The same thing will happen with biotechnologies, and the driver of their development is even clearer – it is the eternal desire of people to be healthy and live for a long time, without observing all the complex rules of a healthy lifestyle. Therefore, I am sure that in the very near future we will see the flourishing of biotechnologies, and ultimately this is great news for all mankind.

Portal "Eternal youth" http://vechnayamolodost.ru  22.08.2016