As the global economy emerges from the pandemic, the world of biotech is changing quickly. With new industry trends forming, new headwinds blustering, and new enabling technologies now in play, the rest of the decade is likely to be a time of great progress in biotech -- and perhaps great disruption too.
Investors who stay abreast of the shifting dynamics will be the best-positioned to profit. Here are three of the most important trends that are reshaping the biotech landscape.
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1. Artificial intelligence as a collaboration asset
Artificial intelligence (AI) is set to reshape the world, and biotech is no exception. While machine learning (ML) techniques have been common in drug discovery, screening, and other areas for years now, the emerging AI epoch should see a dramatic acceleration of that trend. And in keeping with the biopharma sector's traditions surrounding technology development, bigger players will want to demo AI systems via collaborations with smaller businesses before building or acquiring AI assets of their own.
And that's where companies like Schrödinger (SDGR 1.31%) and Recursion Pharmaceuticals come into the scene. For now, those two are leading the charge with their AI-enabled technology platforms for drug discovery and target screening as their primary value as collaborators. For big biopharma businesses, the advantages of collaborating with one of the pair include lower research and development (R&D) costs, faster drug development timelines, lower failure rates, and more effective medicines.
But investors should take heed that the potential benefits of using AI in drug development are, at least so far, distinct from the actual benefits. Be wary of investing in stocks based on their AI-related hype alone.
2. New forms of value-added and cost-cutting collaborations
While AI collaborations are having a bit of a moment within drug discovery, so are a couple of other tech-driven collaboration formats. For instance, 23andMe (ME 7.23%) is aiming to leverage its massive pile of consumer genetic data built from its mail order DNA testing business to both help other biotechs with target identification and build out its own development pipeline.
This could help compress timelines, reduce failure rates, and lower costs. Its main value-add is that collaborators effectively get to tap into its treasure trove of genetic data, which includes the genotypes of more than 13.6 million people. That's something other businesses couldn't get access to on their own, to say the least.
Cost-cutting manufacturing collaborations are also in vogue, led by Ginkgo Bioworks (DNA 3.29%). Its cell engineering platform allows its customers to pass the company a set of requirements for a genetically modified organism, like yeast, which it then cultivates at scale. In theory, that allows collaborators to save big on major R&D costs like genetic engineering as well as the manufacturing costs associated with buying and maintaining hardware like bioreactors.
Much as with the AI collaborations, the actual cost-cutting capabilities of these companies remain in question, and it also isn't clear that they have viable business models in the long-term.
3. Drug development costs are rising
As technologies for discovering and testing new medicines become more advanced and the breakthroughs that are low-hanging fruit start to become sparse, it's no wonder why R&D costs are rising for biopharma players.
In 2018, each drug that made it from the discovery phase to an approval by regulators and commercialization cost around $1.7 billion when including post-market follow-up study costs. By 2022, that figure was closer to $2.6 billion. And it still usually takes an average of seven years to go through the entire process.
One takeaway is that new biotechs will need to raise more money to have a shot at commercializing a medicine. Another is that the alleged cost-cutting and time-saving benefits of the collaborations discussed above haven't had much in the way of an industry-wide impact yet. So be sure to use some skepticism when you're evaluating any claims of low-cost or short-turnaround drug development.
