Biotechnology top choice among investors in 2020

Key drivers for biotechnology are demographic trends, increasing R&D, innovative drugs and ageing population


BIOTECHNOLOGY was the most popular choice for investors in the healthcare ecosystem last year, with a gross transaction value of US$20.19 billion (RM84.36 billion).

Second went to healthcare technology, which made US$12.51 billion, and pharmaceuticals at US$7.43 billion.

Franklin Templeton Investments’ FT Academy APAC head Daphne Yang believes that the key drivers of why many private equities and venture capitals invested in biotechnology were demographic trends, increasing research and development (R&D), and innovative drugs.

The growing ageing population is also driving the demand for healthcare, as people would spend more on healthcare as they grow older.

“According to our research, the global population over the age of 65 will increase 120% from 2019 to 2050, so you can find that the growth is quite significant.

“This also means that despite the Covid-19 pandemic, the (ageing) population is growing and that is the urge for resolution and new solutions for this group,” she said during a virtual presentation yesterday.

The amount of R&D conducted in the past 10 years has also increased by four times and sales per share has tripled.

“Technology has been on an upward trend in the past 10 years, where 53 types of new drugs were approved by the US Food and Drug Administration (FDA).

“As of April this year, 18 new drugs were approved by the FDA,” Yang said.

Hence, biotechnology has taken the lead in introducing new drugs. Retailers can either choose to invest directly in biotechnology stocks or they could invest in the biotechnology sector’s electronic transfer funds (ETFs).

Another method is through biotechnology mutual funds.

“Each has its pros and cons, but I will say the biotech sector requires some specialised knowledge, such as biology background, in order to select the right stocks to invest in.

“Otherwise, it would be better to just leave it to the professional management to make that investment,” Yang said.

Some investors might refer to the ETFs that they would be following as the benchmark for the investment, but Yang warned that they are subjected to the market cap risk.

“If there is a stock where the value increased a lot recently, that means that the investor will have a heavy weight in particular stocks.

“In terms of slotting the biotechnology funds, there are a few things that need to be paid attention to.

“The first one is whether the experienced research team has the expertise of identifying the best company to invest in and the second one will be whether the location is close to the biotech companies and whether the portfolio management has the assets to which the biotechnology firm can talk to them directly,” she elaborated.

Investors must also look at whether the fund has a proven track record, competitive or able to carry out long-term performance.

The biggest investors in biotechnology are from the US and Europe. However, Yang feels that this sector is becoming a global phenomenon and found that there is growing interest in Asia-Pacific region such as from Japan and China.

Biotechnology can also bring benefits to investors in terms of maximum drawdown steps.

Yang warned that most countries’ GDP is close to zero or even recorded negative, but at the same time, the global equity market is still doing very well.

“Therefore, we cannot expect the stock’s performance to be very volatile since these two are moving in different directions.

“It has been like that for a while, but it will continue to have volatility in the future, so investors that hold on to the portfolio longer could benefit in the long run,” she concluded.