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Tom Record
Tom Record 09-05-22

Three drivers of the next leg up in Biotech

Anyone who has invested in technology will be familiar with Moore’s Law. This eponymous theory proposed by the co-founder of Intel in 1965 stated that the processing performance of computers would double every two years due to advancements in chip design.

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

In the years since, it has proven uncannily accurate. However, when it comes to Biotech, rates of progress have often left Moore’s Law for dust.

Take genomic sequencing, for example. In 2003, the first whole human genome was sequenced via a laborious process that cost roughly $2.7 billion. Today, you can sequence the human genome for about $500. If Moore’s Law had been in play, this cost would be closer to $500,000.

Similar stories can be found in proteomics, RNA science, nanotech, sensors and CRISPR. Technologies that were unimaginably expensive and slow just five years ago are now rapid and cheap. That Moderna was able to make the first batch of its Covid-19 vaccine on 7 February 2020 – a month before the World Health Organisation (WHO) declared Covid-19 a pandemic – is testament to just how powerful the Biotech revolution has been.

Machine learning and AI are adding grease to the wheel, and we are at a point where the next giants in Biotech could easily emerge from engineers tinkering in small labs, a bit like the last tech revolution that gave birth to Google and Microsoft.

The seeds of growth
What makes Biotech such an extraordinary investment opportunity now is the sheer breadth of inexpensive and accessible technologies that are converging to transform the industry. There are three key catalysts behind this transformation – tools, techniques and knowledge.

Starting with tools, perhaps the most important of these is next generation sequencing, which I alluded to above. Illumina dominates here, with over 80% of all genomes ever sequenced done so on one of its machines. Illumina’s costs have fallen faster than Moore’s law because it has combined engineering improvements with better computational algorithms and hardware. Together these have further accelerated the cost declines for sequencing as these two exponential improvement curves have overlapped.

The array of tools has expanded, too. This is enabling companies like 10X Genomics to probe into individual cells leading to important research in infectious diseases such as Covid and advances in areas like oncology. People typically think of cancer in terms of the organ it affects – cancer of the lung or liver, for example – but actually what matters is the cancer’s genetic profile and the things that have gone wrong in those cells. Advances in genomic technology mean work is being done to better understand the DNA of cancer cells, which helps early detection in blood, and to better understand the genetic characteristic of patients to identify those more prone to particular types of cancers. This can lead to much more effective rates of detection and treatment.

In terms of techniques, methods have been developed that enable new therapies, which are based on cells or use RNA to suppress or upregulate specific genes. Nanotechnology is bringing costs down and making the impossible possible. And the cost of producing biologic drugs has collapsed as companies like Sartorius Stedim deploy small, efficient bioreactors rather than the traditional, larger and more expensive, units.

The third catalyst is knowledge. Science has made huge advances in the understanding of disease, and there are a handful of companies that are highly adept at consolidating their knowledge with each drug development increasing their rate of success. Ionis is a great example of a company that has developed a platform technology based on RNA. It can change the sequence encoded in its drugs to target different diseases. Knowledge has ballooned to the extent that companies are finally designing drugs to treat causes not just symptoms.

While the rapid development of Covid vaccines has brought Biotech to the fore, we believe the sector is at an extraordinary juncture with its ongoing transformation offering a unique opportunity for investors.

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KEY RISKS

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

Investment in funds managed by the Global Fundamental Team may involve investment in smaller companies. These stocks may be less liquid and the price swings greater than those in, for example, larger companies. Some of the funds may hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio. Investment in the funds may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. 

Some of the funds may invest in emerging markets/soft currencies and in financial derivative instruments, both of which may have the effect of increasing volatility.

DISCLAIMER

This is a marketing communication. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.  It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of securities are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.  

Tom Record
Tom Record

Tom Record joined Liontrust in April 2022 as part of the acquisition of Majedie Asset Management where he was a Fund Manager for eight years.

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