Financing the future of healthcare - Pt 1

If the fight against Covid is a war fought in the world’s laboratories and hospitals, then the innovations now emerging in pharma and biotech are also set to fundamentally change the world – including the financial markets, both for issuers and investors.

Of all the advances to come out from the experience during Covid, messenger ribonucleic acid (mRNA) technology is set to have the greatest potential for application in oncology and genetic disorders, as well as infectious diseases.

Currently Pfizer and rival Moderna (MRNA) enjoy emergency use authorisation (EUA) for their mRNA vaccines. With the US Food and Drug Administration yet to approve nucleic-acid-based vaccines, the EUA is being regarded as a huge deal by the industry.

By extension, this EUA will position Pfizer – whose researchers explored RNA/DNA vaccines against HIV and the Zika virus – to harness its massive resources to explore mRNA-based solutions for other diseases and conditions.

“Biopharma companies showed a tremendous effort in the past 15 months with Covid vaccine developments, and we expect more innovation as well as an increase in drug manufacturing capacities to continue. We see this as a structural trend rather than a temporary one,” said Zehrid Osmani, portfolio manager focused on global equities at Martin Currie.

“In emerging markets, we foresee a rapid increase in investing in healthcare technological innovation,” he added. “Structurally, it means that emerging market healthcare spend over the next decade could achieve a level of growth in the teens, compared to mid single-digit growth for developed markets.”

A total of $51 billion in venture capital was invested in healthcare in 2020. In biotech alone, 84 firms launched initial public offerings (IPOs), an increase of 65% over 2019, raising more than US$15 billion – a threefold increase over the previous year – and saw their stocks climb an average of 89% year to date.

IPOs have continued at a swift pace into 2021, and the funding boom is expected to spur further innovation. According to one survey, 64% of biotech chief financial officers say they plan to increase research and development (R&D) spending in 2021.

The momentum has largely been created by smaller and more nimble players, but large-cap pharma companies are now also exploring novel therapeutics.

Cashed up large-caps, often facing patent expirations, have been moving rapidly on small and mid-sized biotechs. In December, for example, AstraZeneca announced it would spend $39 billion to purchase biotech Alexion Pharmaceuticals to expand its the treatment of rare diseases.

This is an excerpt from an article in the Summer 2021 issue of FinanceAsia

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