Why personalisation and big data are game changers for this unique industry
It’s hard to pinpoint where it really started: our mass desire for personalised products and services. Was it as early as the ability to monogram handbags? Or pick specific pantone shades for our phone cases (or cars)? These days, big data and personalisation go hand in hand.
Curated shopping suggestions from Amazon based on your spending habits? Tick. Targeted advertising for big-ticket items you happened to have previously been researching? Tick.
Before you write this off as the painful intrusion of marketing and technology throughout our lives, there is an unexpected silver lining. And this industry has found it. Personalisation and big data are game changers for healthcare. Treatments that are tailored to your genomic make-up or hit at the molecular levels of a disease? The ability to generate new vaccines for the next pandemic at rapid pace? This is not science fiction but a future that biotechnology companies are actively working towards.
It’s a win-win situation. We win from better healthcare solutions, and companies profit from our eternal need for healthcare.
Big data, big money
We’re seeing an extraordinary change in a short period.
“Two decades ago, biotechnology was about genomic mapping. We can sequence faster today so can triangulate data points faster. Today, it is more about spatial exploration rather than single cell understanding,” says Dr Bianca Ogden, Portfolio Manager for the Platinum International Healthcare Fund at Platinum Asset Management.
She points out that the rapid changes in how biotechnology companies research and develop solutions have been driven by the emergence of next generation molecular tools in the laboratory. However, machine learning and automation are working with these tools for the next advances in biotechnology.
Ogden views the future as being about automation and robotic experiments, allowing higher throughput and then applying machine learning to the vast amount of data that is being thrown of these robots. These will allow more rapid computer analysis and mapping to pinpoint issues. In addition, the hope is that in the future, automation and robotics will support more efficient manufacturing. After all, we can’t deliver mass customisation of healthcare if it’s too expensive and difficult to deliver.
In fact, we can also thank this technology for the ability of biotechnology companies to deliver vaccines and treatments during the COVID-19 pandemic.
Victor Windeyer, Portfolio Manager for the Future of Healthcare Fund at Australian Unity, expects the personalisation of healthcare, or ‘precision medicine', to become the norm over time. In fact, he says we are already starting to see the results in the industry.
“Big data in technology is impacting in three key areas: drug discovery, trial design and patient treatment. The area of drug discovery has advanced significantly with a quicker drug discovery cycle and higher quality drug candidates to take into further testing. The trial designs are becoming increasingly targeted with candidates undergoing additional testing, including genomic testing, particularly in oncology,” he says.
In fact, we are now on the precipice of cancer vaccines.
The same mRNA technology that we saw used in COVID-19 vaccines was originally developed as part of research into cancer vaccines and is expected to continue to be part of the solution. BioNTech (NYSE: BNTX) have collaborated with Genentech (controlled by Roche Holdings (SWX: ROG)) to trial targeted cancer vaccines, while Moderna (NASDAQ: MRNA) and Merck (NYSE: MRK) have partnered on a melanoma vaccine.
It shouldn’t be surprising that companies focusing on oncology and rare disease tend to be the biggest targets for M&A activity.
Funding in a tough environment
Research and technology don’t come cheap. Investors may wonder how biotechnology companies will fund any of these lofty goals in the current environment.
“It’s a more mature and healthy industry than in the past. We’re in the ‘bust’ period where you see financing and licensing activity. From a dollar perspective, M&A is down, though activity is up,” says Ogden.
The biotechnology industry is experiencing significant challenges, but out of this comes a refocus on innovation. Ogden has seen this happen before. She notes that the licensing and partnership activity occurring at the moment speeds up development timelines and allows for non-dilutive capital. She has also seen royalty deals to gain funding. On the whole, it is quite a healthy funding environment. Companies with successful trials are able to raise money quickly - just as they should be.
M&A activity has traditionally supported ongoing research in the sector and will continue to in the future. Activity has declined over the course of the COVID-19 pandemic, which Windeyer says is partly due to the economic environment and partly because some companies, cashed up from capital raises, have been able to hold out for higher premiums.
Ogden suggests that activity, on the whole, is more measured, with companies taking the time to do due diligence and determine whether an acquisition is truly complimentary to their business. She also adds that many biotechnology companies these days can borrow money against royalties and use licensing instead of needing to be acquired to continue trials.
Windeyer has similarly noticed a drop-off in M&A activity, with the largest deals below what might have been seen pre-COVID.
Some of the biggest activities of late have been the CSL (ASX: CSL) acquisition of Vifor for US$11.7bn and Pfizer’s (NYSE: PFE) purchases totalling US$17.5bn of Biohaven, Reviral and Global Blood Therapeutics.
“Given the interest rate driven sell off in the biotech sector and the war chests built by the large pharma companies, we suspect that 2023 and 2024 will see a higher level of M&A activity,” says Windeyer.
The names to watch going forward
Courtesy of the COVID-19 pandemic, names like Moderna, Pfizer and AstraZeneca (LON:AZN) are effectively household brands today. So, where are the unique opportunities that fund managers are betting on?
Windeyer’s top picks are Vertex (NASDAQ: VRTX) and Alnylam (NYSE: ALNY).
Vertex is the leader in cystic fibrosis and a strong development pipeline in other indications including diabetes, gene therapy and non-opioid pain management. Purchases of Semma Therapeutics and Viacyte are supporting its efforts into developing cell therapy treatment for diabetes.
“If Vertex are able to reintroduce or increase the prevalence of islet cells, the dependencies of diabetic sufferers on insulin will be reduced significantly or in many cases perhaps even eliminated,” Windeyer says.
Alnylam has RNA interference technology which has broad applications. It recently demonstrated an improvement in cardiovascular efficiency in patients with amyloidosis (ATTR) with cardiomyopathy. Windeyer believes it will likely be an acquisition target for large pharmaceutical companies.
Ogden’s top picks are the Denmark-based Zealand Pharma (CPH: ZEAL) and Exscientia (NASDAQ: EXAI).
Zealand Pharma was identified for its diabetes capabilities years ago but struggled to make it work. Ogden notes that Zealand Pharma's peptide expertise is what will set it apart in developing next generation combination obesity therapies. It is about how to combine different peptides that will be important in years to come.
Exscientia, a UK biotech, is all about personalised medicine, combining wet labs with computer science to develop more precise drugs faster, while at the same time work out which cancer patients responds best to a drug. Most recently the company expanded its biologics design capabilities giving AlphaFold2 a run for their money.
"The market today does not want to hear AI buzzwords or do the work to understand companies like Exscientia hence its enterprise value today is at $140mn despite having significant partnerships with large pharma companies and an emerging pipeline that is growing quickly," Ogden says.
On the next level
Both Windeyer and Ogden caution that it is a high-risk sector – but there is a lot going on to be excited about. The next phases of healthcare will be revolutionary and ground-breaking – but there are opportunities right now.
“Some 1,100 biotechs make up the remainder of the listed market providing a fantastic opportunity for the astute investor to sift through the list and separate the wheat from the chaff,” says Windeyer.
What companies in this space are you betting on?
If you would like to know more about the strategies that Dr Bianca Ogden or Victor Windeyer manage, please click through below:
Never miss an insight
If you're not an existing Livewire subscriber you can sign up to get free access to investment ideas and strategies from Australia's leading investors.
And you can follow my profile to stay up to date with other wires as they're published – don't forget to give them a “like”.
2 topics
8 stocks mentioned
2 funds mentioned
2 contributors mentioned