Little did we know it, but in December 2019, society would change forever… No one would’ve guessed that a pandemic was on its way. After all, the economy was good, and the stock market seemed to reach new highs every week.
But as COVID-19 took the world by storm, the race was on for the cure… That meant 2020 was all about vaccines.
Many competitors rose from the ashes of a virus-stricken world… Moderna, Pfizer, Johnson & Johnson, and others as well.
Today, as vaccinations become more widespread, many are left wondering… What’s the next big thing for biotech? And the answer, as always, is to follow the money…
Last year everyone wanted to invest in the cure for COVID-19. It helped companies create the vaccines in record time. It was the fruition of years of research. The urgency of the pandemic allowed companies to speed up delivery schedules to unimaginable levels.
Amid all the excitement about the COVID-19 vaccine, it’s easy to forget that biotech companies work on other diseases too. The most profitable ones are chronic conditions. Sadly, the longer you have a disease and don’t die, the better it is for business. There’s a lot less money in cures because a company only gets paid once.
Diabetes is one of the best examples of this – once someone receives a diagnosis, they’re informed there’s no cure. Treatment often means pills in increasing dosages over time. Unfortunately, you’ll be taking them until you die. Diabetes is a massive money spinner for the pharmaceutical sector.
Each new patient represents a long-term income stream, and the number of patients is growing all the time.
Alzheimer’s is another chronic condition with a massive growth market. Industry giant Biogen’s recent FDA approval of its Alzheimer’s drug is a big deal. But the new drug isn’t a cure… It’s only a treatment. And that treatment will cost patients $56,000 a year. You read that right, $56,000 a year.
This expensive new drug is the only approved treatment for Alzheimer’s. And the number of patients is growing quickly as Baby Boomers age. That’s certainly a big win for the company. It’s also a win for the biotech industry as a whole.
Biogen is proof that companies are capable of delivering on truly innovative solutions to some of life’s biggest health problems. This should be a bullish catalyst for biotech stocks.
Another reason for enthusiasm is that the FDA approved Biogen’s drug with less than the usual standard of due diligence.
That’s good news for other drug companies. It suggests the trend of speeding up the time to market for drugs – which began during the pandemic – was not a one-off occurrence. If that’s true, the wider biotechnology sector could be in for a significant rerating, which would mean higher prices.
One way to gain exposure to a bullish trend in biotech is with the iShares Biotech ETF (IBB). IBB was created to give exposure to U.S. biotechnology and pharmaceutical companies on the Nasdaq. It’s been ranging over the last few months.
However, Biogen’s positive news could be the catalyst to refocus investor’s attention on everything the sector is doing outside of vaccines.
All the best,
Co-Editor, Market Minute