Biotech is approaching a pivotal point before 2025. Thanks to a confluence of favorable technological, scientific, and business factors, the industry could soon go into overdrive.
And if you plan on investing in the space anytime soon, you'll need to understand what's changing, and why. So let's take a look at three big green flags for biotech stocks that'll be driving major returns, and soon.
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1. Artificial intelligence tools could accelerate the pace of drug development while reducing costs
Research and development for new drugs is difficult and expensive. As of 2013, it typically cost upward of $2.6 billion to formulate a medicine, test it in pre-clinical trials, and then advance it through the clinical trial process to attain regulatory approval for sale. By some measures, that cost has risen to more than $6.1 billion in the last 10 years.
Only approximately 12% of candidate medicines entering early-stage clinical trials ultimately make it to the market. And the process can take more than 13 years from start to finish in some cases. Research productivity is falling because the low-hanging fruits in biomedicine are already picked.
But that bad trend may soon start to reverse thanks to companies like Recursion Pharmaceuticals (RXRX 3.57%) which is bringing artificial intelligence (AI) to bear on drug development. The idea is that the company will take its massive trove of data on biochemical interactions and disease pathology, use AI to identify the most promising targets, pass them on to an integrated robotic wet lab for screening, and then advance the best-performing leads for further pre-clinical development.
If the approach succeeds, the biotech could help other bio-pharmaceuticals cut down on their failure rates and time wasted heading down dead ends. It isn't the only biotech that's planning to use AI to do exactly that, either; Schrödinger is a competitor taking the same approach, among many others.
In short, the trend of increasingly difficult drug development might abate. And that's a big green flag for the entire industry, as easier development leads to more medicines and thus more revenue.
2. Gene-editing technologies are starting to produce previously impossible therapy candidates
The second green flag for biotech stocks in the coming years is that genetic-editing technologies are finally yielding some very impressive results that will bring previously untreatable or incurable illnesses into reach. Take CRISPR Therapeutics (CRSP 0.34%) and Caribou Biosciences for example. Both biotechs are developing medicines that would have been unthinkable a mere 10 years ago.
CRISPR's cell therapy program aimed at treating diabetes, VCTX211, is designed to knock out two of the natural genes and knock in four other genes to make six changes in total.
Each of those edits is an additional feature that's intended to make the resulting cell therapy perform better, with higher efficacy at its therapeutic task, a lower risk of serious side effects, and more survivability in the patient's system. More-survivable and more-effective therapy cells mean that fewer cells are needed to get a good effect, so manufacturing costs could be lower, too. The program is enrolling now for early-stage clinical trials.
Caribou is working on a cell therapy program for B-cell cancers that features five different edits to the therapy cells. Those edits have largely the same goals as CRISPR's: Make the therapy candidate perform better.
For reference, the vast majority of cell therapies on the market right now, like Bluebird Bio's medicine for beta thalassemia, Zynteglo, only perform a single edit under its mechanism of action.
So in the coming years, expect to see ever-more-complex products -- and expect them to be far better than the early cell therapies in pretty much every way, even including cost.
3. Big pharma appears to be in the mood to collaborate
The last green flag for biotech stocks is that big pharma players like Pfizer are actively searching for businesses to collaborate with in the hope of shoring up their revenue in the long term. In early July, it invested $25 million into Caribou as part of its plan to generate $25 billion in sales from business development by 2030.
Similarly, Merck just signed a cell-engineering collaboration deal with Ginkgo Bioworks for up to $490 million in fees for the latter.
Collaborations are nothing new. But with so much activity in the biotech space, and with generational growth drivers like AI and gene-editing technology now in play, it's easy to see why companies want to secure their slices of the pie. And for pretty much all biotechs, that's great news.
