Which biotech to invest in
Five areas for investment in biotech companies
Valery Smirnov, Financial Director of IC Rosgosstrakh Life
Hi-tech+
Invest in biotechnology in Russia today can not only large investors, but also individuals who have even small available funds. The choice of investment tools and directions is quite wide – from bioinformatics to 3D printing of tissues and organs.
Valery Smirnov, Financial Director of Rosgosstrakh Life, wrote a column for us about what to pay attention to in the global and Russian biotechnology markets.
Investments in biotech and medical companies: what is the difference?
The principles of investing in biotech and medical companies differ from each other quite a lot. They have different valuation methods, they have different effects on the investor's expenses and income, and they work differently in the long term. Despite this, there is a "gray" zone where they interact closely with each other.
A biotech company is a startup with high risks and high profitability potential. Capitalization growth in this area is a very rare phenomenon, but the potential income fully justifies the high probability of failure. The medical business is more predictable and stable, so the dividends of medical and pharmaceutical companies make up a significant part of the investor's income, although their size is usually lower than in the biotechnology sector.
Experienced investors use different methods of assessing the prospects of medical and biotech business. In the first case, the standard indicators of joint-stock companies are evaluated, namely their total profitability, P/E indicator (financial indicator of the ratio of the market value of shares to the annual profit received per share), dividend yield, etc. In the second case, it is important to assess the probability of startup success, potential future income and capitalization growth.
Sometimes biotech companies work "at zero" or even at a loss for several years. The fact is that very often they invest all the earned and attracted funds in research and development. That is why such companies are constantly in need of investments and are associated with venture funds and stock markets. Investors take risks consciously, because they believe in the idea and that its implementation will bring significant profits in the future.
For example, the creation of CAR-T immunotherapy, an innovative method of treating rare types of leukemia and lymphomas, was funded by "training" a person's own immune cells to fight cancer cells. The British biopharmaceutical company Autolus Therapeutics, which develops new methods of cell therapy, has raised about $150 million in four years after the initial public offering of its shares (IPO) on the American NASDAQ exchange. In early November, Christian Itin, Chairman and CEO of Autolus, announced that recent studies have confirmed high remission rates of patients who have undergone the new AUTO1 therapy (a type of CAR-T therapy). AUTO1 is designed to increase the stability of the body's own "trained" cells in the serial targeted destruction of cancer cells. As of July 2019, 53% of the studied patients remained in remission for more than 9 months.
Promising biotechnologies of the future for investors
Among the most promising areas it is worth highlighting:
- Bioinformatics. It includes the areas of analysis of genetic sequences, genome labeling, assessment of biological diversity, etc. DNA analysis and decoding enable humanity to fight more than 6,000 types of hereditary diseases. The development of this direction is impossible without BigData technologies. In addition, bioinformatics is considered one of the most sought-after professions of the future, which also attracts the attention of investors.
- Targeted drug delivery. The goal of scientists is to learn how to deliver drugs to sick cells of the body, bypassing healthy ones. New discoveries are constantly emerging in this direction, Russian scientists are working on targeted delivery of medicines on a par with Western ones.
- The field of development of biotechnical drugs. Russian scientists often present their achievements in the creation of biotechnological drugs at large-scale international events. For example, in November 2019, 10 domestic companies were represented at the pharmaceutical exhibition CPhI Worldwide 2019. The development of the Generium company was particularly successful – the first biosimilar of one of the most expensive drugs in the world (eculizumab, the cost of an annual course of treatment is approaching $ 500,000).
- Tissue and organ cultivation, 3D printing. These are rapidly developing areas, and today there are already patients who have had body parts, bones, internal organs and tissues restored using bioengineering technologies. Human own cells are used for cultivation, thereby significantly reducing the level of their rejection by the body.
- Diagnostic and screening systems. It is impossible to imagine medicine without them. This field of biotechnology is also actively developing, since the level of error in diagnosis is still unacceptably high. Diagnostic errors often lead to incorrect treatment of patients and even their death. Currently, micro sensors are being actively developed, which are implanted under the skin and collect data on the work of the human body from the inside.
Global technology companies are actively investing in biotech, and some of them have engaged in research and development themselves. Due to the continued increase in interest in the sector, 2018 broke records for investments in biotech venture companies. Then we managed to attract more than $17 billion in 12 months.
Amazon founder Jeff Bezos has been keeping his finger on the pulse of biotechnology for a long time. Back in 2017, he invested more than $100 million in the startup Grail Inc, specializing in the development of tests for early detection of cancer. In addition, Bezos is investing millions of dollars in Unity Biotechnology, a project working to eliminate the effects of aging. Unity Biotechnology's research is aimed at finding a way to rejuvenate aging cells of the body.
Russian corporations are not actively investing in the biotechnological field. Today, this is mainly done by venture funds with state participation or the state with the support of private funds. Among them are the RVC Biofund, Bioprocess Capital Ventures, Maxwell Biotech, RBV Capital and others.
Investments in biotechnology in Russia is accessible not only to large investors, but also to citizens with an average income. You can invest through brokers who have access to the stock markets of high-tech companies, such as NASDAQ and RII of the Moscow Exchange. Another tool available to everyone is investment insurance programs with a choice of industry. For example, Rosgosstrakh Life offers to invest in reliable enterprises with maximum capitalization and innovative projects that can – without the slightest exaggeration – revolutionize their industries.
For example, the owner of a policy of ICI can invest in the Editas Medicine project, which is considered one of the most promising biotech companies in the world. The company is currently working on the EDIT-301 program using CRISPR technology against rare genetic blood diseases. Scientists are applying a genome editing approach, using a DNA chain break or removing sections of damaged and mutated chains. In 2020 Editas Medicine will conduct its first clinical trials, the report on which will appear in June.
Attractiveness of the Russian biotechnology market for investors
The Russian venture market of biotechnologies is currently only being formed. Despite the unwillingness of investors to invest in projects with a long payback period, individual niches can already be called promising. For example, there is a stable interest in the production of medicines with a short development cycle and rapid market entry, as well as medicines at the last stages of clinical trials.
Domestic developments have a certain head start on the global market due to the scientific component. The Russian scientific community has fundamental knowledge, which makes it possible to make high-profile discoveries that save the lives of hundreds of thousands of people with cancer, kidney failure, autoimmune and other serious diseases. It is this potential that inspires confidence in the prospects of the domestic biotechnology market. The stop factor is rather a lack of experience in the field of monetization of scientific ideas, building links between the scientific community and business - but this is a temporary phenomenon.
The Russian biotech industry is at the stage of accumulating competencies that will inevitably lead to a qualitative leap and an increase in the share of the domestic segment on a global scale. We can see the beginning of this process already now – Russian innovative developments are beginning to enter foreign markets with high regulatory requirements. For example, Generium is preparing for deliveries to Latin America and the Middle East, where the drug is in the final stages of registration.
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