Why investing in biotechnology is a good idea right now

Due to its robust growth and alluring valuations, the biotech industry has enormous potential for investors

Here's how to play it the best.

The medical sciences are undergoing a golden age of innovation. Biotech firms that concentrate on creating novel medications have long been acknowledged as a vibrant and promising sector for investment, providing investors with secular growth and life-altering treatments for patients. Biotech companies have been responsible for most new drug approvals in the last ten years, and the Nasdaq Biotech Index has outperformed the SandP 500 in 17 of the last 30 years.

Because of the quick development of vaccines during the COVID-19 pandemic, the biotech industry gained widespread attention and demonstrated its innovative potential. Since then, the sector has faced challenges from macroeconomic factors like rising inflation and interest rate increases. Nevertheless, we think that it is now overcoming these obstacles with robust cyclical and secular growth and appealing valuations, which makes this a desirable moment for investors prepared to handle short-term volatility in return for significant long-term growth potential. What are the biotech industry's current tailwinds, then?

The demographic narrative.

Demographic trends are one of the most persuasive arguments. Seniors (those over 65) are predicted to double in number worldwide from 800 million in 2024 to 11.6 billion in 2050. Every day, nearly 12,000 people in the US turn 65, contributing to a rise in age-related illnesses and chronic conditions. This in turn is increasing the need for creative healthcare solutions and opening up a lot of doors for biotech firms that are creating ground-breaking therapies.

More drug approvals result from maturing innovation.

New technologies and the availability of inexpensive genomic sequencing data are enabling the development of new medications that prolong or enhance patient lives. In many ways, this process is similar to how the development of fiber networks and the falling cost of microchips laid the groundwork for the 2000s IT boom. It has resulted in enormous advancements in the creation of novel therapies for diseases like obesity and cancer that have historically been challenging to treat.

Among the most exciting investment opportunities are next-generation anti-obesity medications, which have the potential to be the first medical innovation to generate over £1 trillion in value. With more than 100 million obese Americans and more than 764 million worldwide, obesity is the most prevalent disease in Western society. Numerous chronic illnesses, including diabetes, hypertension, and liver disease, as well as cardiovascular disorders like heart disease and stroke, which are the world's leading causes of death, are significantly increased by it. Some of these conditions have improved by 2030%, according to recent outcome studies from some of the obesity medications currently on the market. Clearly, the negative effects of obesity medications on health extend far beyond weight loss and diabetes.

There are numerous additional new product waves with sizable target markets. In order to provide patients with more prompt interventions, new diagnostic tools are improving early disease detection and monitoring. These advancements put biotech companies at the forefront of healthcare's future, as they are responsible for the majority of new drug approvals, unlike large pharmaceutical corporations.

Appealing prices.

Comparatively speaking to history, biotech indices are trading at attractive multiples and are well below their 2021 peak. Numerous small and mid-sized biotech businesses are trading with market capitalizations that are almost equal to the cash on their balance sheets. For the fourth consecutive year, the sector underperformed the S&P 500 for more than a year prior to 2024. We anticipate the sector to rerate and resume outperformance as a number of catalysts are approaching.

M&A and the effects of patent cliffs.

Drug patents are only valid for a limited period of time; after that, competitors can easily and cheaply copy the treatments, which "go generic." Several major pharmaceutical companies will lose their exclusivity over the course of the following ten years, with "patent cliffs" worth roughly US£500 billion. However, only Western biotech companies have the late-stage assets required to meet their needs, and these companies currently have about US£1 trillion in dry powder (cash plus debt capacity) to make acquisitions. The obstacles that have recently deterred larger transactions should be removed, especially if the US Federal Trade Commission is more transaction-friendly.

Since small and mid-sized biotech companies are frequently the targets of large pharmaceutical companies, this possible increase in M&A activity presents opportunities for investors exposed to these businesses. Usually, the industry sees M&A at healthy share price premiums.

The way to play this.

Investor access to this theme is offered by RTW Biotech Opportunities Ltd, which debuted on the LSE in 2019.

The trust creates, develops, and supports top-tier biotech businesses, giving investors long-term capital growth. It leads businesses through every phase of development, from infancy to maturity, exposing investors to cutting-edge public and private companies that would otherwise be elusive.

From its launch in October 2019 to December 31, 2024, RTW Bio has provided investors with a net asset value total return of 74%, significantly exceeding both the Nasdaq Biotech Index (+27,6%) and the Russell 2000 Biotech Index (+7,4%).

As of February 2025, the manager, RTW Investments, had £6.33 billion in assets under management. The company was established in 2009. With offices all over the world, RTW employs 80 people and partners. The deep scientific expertise of the investment team is demonstrated by the fact that about half of them hold MDs or PhDs. Their top goal is to unlock value by promoting commercial therapies and medical innovation that have the potential to significantly improve patients' lives and yield large profits for RTW Biotech Opportunities' shareholders.

Disclaimer.

Unless otherwise noted, this data is provided as of the publication date. The opinions and information in this advertisement, as well as its completeness, accuracy, and fairness, cannot be relied upon in any way. It is not advisable to buy, sell, or hold any securities based on the information presented in this advertisement. Results in the future are not always predicted by past performance.