Each week, a professional investor tells us where he’d put his money. This week: Dr Daniel Koller of BB Biotech AG highlights three favourites.
Health is the key to a long and happy life. The biotechnology sector plays a crucial role in providing people with the means to recover from disease and remain as robust as possible – and investors are only beginning to recognise its vast potential. The sector has encountered some short-term turbulence, however. The Nasdaq Biotechnology index (NBI) enjoyed a stellar first quarter of 2019 fuelled by mergers-and-acquisitions (M&A) activity, but it has since declined by 2%.
The political backdrop has unnerved investors. In the US the pressure to lower drug prices is growing. Healthcare costs and the cost of medicine have taken centre-stage in the Democratic Party’s presidential primaries. The Trump administration recently retreated from a plan to lower prescription-drug charges, but has also threatened to use international drug prices to establish ceilings on what the health system will pay for various treatments.
An auspicious outlook
Nonetheless, investors would do well to keep the big picture in mind. Over the past ten years the NBI has risen by 293%, punctuated by the occasional plunge of up to 30%. For now, there are reasons to be confident. The industry exhibits healthy balance sheets as the volume and number of flotations have reached record levels. The Food and Drug Administration’s (FDA) acting commissioner, Norman Sharpless, has underlined his commitment to further reforms and innovations to continue to ease the burden of the drug-approval process. M&A activity is expected to pick up. And the pace of innovation, reflected by drugs entering clinical research and being approved, continues to accelerate. Despite the current political landscape, it is our strong belief that companies developing innovative treatments to tackle areas of significant unmet medical need will continue to enjoy pricing power when their treatments come to the market. The long-term outlook is encouraging for patients and investors alike.
The key innovators in the sector
Biotech companies often pave the way for cutting-edge medical inventions. One of these innovation leaders is Ionis Pharmaceuticals (Nasdaq: IONS), a global pioneer in antisense (genetically-targeted therapeutics) technology with over 30 compounds in its development pipeline. Offerings range from treatments for spinal muscular atrophy to neurological products for Huntington’s disease. Ionis also develops drugs such as Tegsedi and Waylivra to deal with severe and rare medical conditions. Waylivra, for instance, tackles an unusual genetic illness that produces high levels of fats called triglycerides, causing excess fat to build up in various parts of the body.
Incyte (Nasdaq: INCY) primarily focuses on oncology (cancer treatment). The company has assembled a renowned team of drug discovery and development scientists focused on targeted oncology, which enables anti-tumour drugs to attack the right cells. Its main drug, Jakafi, treats rare types of blood cancer. Another intriguing outfit is Neurocrine Biosciences (Nasdaq: NBIX), which focuses on neurological and hormone-related disorders. Neurocrine has successfully launched the drugs Ingrezza for the treatment of mental-health disorders and Orilissa for gynaecological problems.