AAM Viewpoints: Biotechnology: An Enduring Growth Theme
Traditional technology may enhance our lifestyles, but biotechnology could directly impact our quality of life.
Investors typically think of technology as the three S’s: software, smartphones and semiconductors. While these are viable investment themes, the next big technology breakthroughs could be in biotechnology. Most are familiar with the term “byte,” but how many investors are aware of CRISPR – a gene editing process that could deliver huge returns when it comes to the treatment and prevention of diseases ranging from cancer and diabetes to nervous disorders and viruses.
In the last 12 months the S&P Biotechnology Select Index (SPSIBI) is up more than 12% vs. a flat performance for the S&P 500 (SPX). We anticipate a continuation of this standout performance comparison. A reason could be that investors are seeking opportunities that may offer the most exciting product innovations and earnings growth prospects. Amid the COVID-19 outbreak it is not difficult to imagine how biotechnology companies are in the forefront as demand increases dramatically for a cure and a vaccine. Of course, as the five-year record for biotechnology indicates, this is not an industry that has suddenly popped up because of the coronavirus. Long after this threat passes, there will be continued strong demand for cures to other diseases and health disorders.
Demographics support continued growth in the Health Care sector. Currently, 14.5% of the population is 65 years of age or older. That percentage is expected to climb to 21.7% by 2040. The number of people 80 or over is estimated to triple by 2050. This should put further demand on therapeutics and other treatments to meet the needs of the aging baby boomer generation. Thirty years ago, it cost $3 billion to map all the DNA in a human; today that cost has whittled down to $1,000. That cost could fall to $100 in the not-too-distant future making gene therapy treatments accessible to everyone.
Gene editing research totaled about $551 million in 2017, but the rapid move toward targeted therapy using DNA has the potential to see that figure expand to $3 billion by 2025. Biotechnology companies involved in CRISPR technology are likely to be highly focused on specific diseases and patient groups. Those companies targeting highly specific illnesses with proprietary therapeutics could make them particularly attractive acquisition candidates by large pharmaceutical companies seeking to enhance their pipelines.
Innovation is shifting away from large pharma to biotech – and the trend may not end soon. Not only could the next few months of aggressive research and development in biotech companies help fight our current pandemic, there will always be continued strong demand for the battle against cancer – the second leading cause of death in the U.S. This could be an important and enduring investment theme for many years to come and we believe the industry could be on the cusp of groundbreaking innovations and discoveries.
The opinions and views of this commentary are that of Peroni Portfolio Advisors and are not necessarily that of AAM.
This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.