Behind the biotech boom

EDUCATION OVERVIEW

Dissecting the biotech boom

These 5 life sciences themes are the key to reshaping our health – and our economy

Scott Power

SCOTT POWER

Coming from a medical family, I’ve always had an interest in healthcare and life sciences; so naturally when starting as an analyst with Morgans more than 25 years ago, I gravitated towards the sector.

I’ve seen exceptional technology and health care businesses over that time. Not all have been commercial successes. However, from heart assist devices and rapid diagnostics; to therapeutics and treatments saving lives and improving wellbeing, Australia has developed an enviable global reputation as a biotechnology leader.

Also known as life sciences, biotechnology concerns the study of living organisms including microorganisms, plants, animals, and human beings.

I view the sector as being split into four different buckets: ◾Pharmaceuticals (including drug discovery) ◾Medical devices ◾Health services (including pathology and radiology) ◾Health technology (machine learning and software innovation) of economic growth, life science has now become a major player in our economy.

The Australian life sciences ecosystem is worth more than $8 billion in annual revenue with annual growth projected at 3% from 2021-2026.

Globally the sector is projected to be worth around US$3.44 trillion by 2030, and the Federal Government is ensuring Australia is at the party.

Australia’s medical and biotechnology sector has benefited from a multimillion-dollar windfall of government funding along with substantial tax breaks for companies investing in R&D.

The R&D tax incentive program is probably the most efficient and effective program to encourage nondilutive funding into the sector. It’s a program that should be maintained and enhanced.

Health and life science is considered one of Australia’s strongest research sectors to be fostered by federal, state, and territorial governments.

High profile examples of Australian biotechnology developments include the Cochlear implant now being sold by Cochlear globally and Resmed’s (RMD) CPAP device helping many people with sleep apnoea.

National Institute of Allergy and Infectious Diseases (NIH/NIAID), shows a transmission electron micrograph of SARS-CoV-2 virus particles

Other home-grown technologies occupying a spot on the world stage include a disinfection system for ultrasound probes by Nanosonics (NAN) and Polynovo’s (PNV) synthetic absorbable polymers.

Healthcare has outperformed the ASX 200 index in 8 of the last 10 years. The CAGR over the last 10 years for healthcare is 18.1% compared to the ASX 200 at 12.9%.

As of June 30, 2022, there were 156 companies with a market capitalisation of $206 billion on the ASX, according to Bioshares. The top 10 represent 94% of market cap, including world-renowned blood products giant CSL (CSL), hearing solutions company Cochlear (COH) and diagnostics provider Sonic Healthcare (SHL).

But every large company started as a small one, which is one of the

“Globally the sector is projected to be worth around US$3.44 trillion by 2030”

exciting aspects of Australia’s health and biotechnology sector.

Australia also has a burgeoning medicinal cannabis sector with 16 stocks listed with a market capitalisation of $840 million. Medical cannabis is one of the world’s fast-growing industries as scientists discover ways to use the plant’s medicinal compounds.

Spend on legal cannabis is

Biotech research

forecast to be worth more than US$60 billion by 2024, as regulations worldwide catch up with the demand. Australia is considered one of the most progressive.

In 2020 a significant change in Australia’s medicinal cannabis market occurred when TGA regulations changed to allow medicinal cannabis products to be sold as an over-the-counter medicine under the TGA’s S3 schedule.

Medicinal cannabis is currently only available under the SAS-B scheme, where patients must obtain a prescription from a registered doctor (S4 medicinal cannabis product).

Investors eyeing Australia’s health and biotech space should consider 5 key themes which underpin this burgeoning sector.

QUICK FACTS

Workers on the production line building new Cochlear Implants

1. M&A activity

Costs to develop pharmaceutical drugs and medical devices are high, so it’s no surprise the health and biotechnology sector is ripe for merger and acquisitions.

Larger pharmaceutical and medical devices companies often take over smaller ones, which they may see as either a competitor or offering a value add. When it comes to M&A activity in Australia, there’s always a deal on the table.

2. Hospitals without walls

Remote monitoring of various health conditions and consultations through telemedicine is becoming a modern phenomenon.

The shift to hospitals without walls has been fast-forwarded by the Covid-19 pandemic. Health companies are increasingly developing devices enabling monitoring and diagnostics beyond the confines of hospitals and medical facilities.

3. Personalised medicine

Personalised medicine uses a patient’s genetics, history and other factors for prevention, diagnosis, monitoring and treatment of disease. Therapies, for example, can be matched to specific patient types to achieve optimal outcomes. Personalised medicine has become an increasing focus of biotechnology globally.

4. Value of medical data

Simply, medical data has currency. Unlocking insights from health data sets is providing significant value to patients, healthcare providers, insurance payers, pharmaceutical companies, and medical device companies.

Benefits are widespread including operational savings in hospitals and health care networks, greater disease understanding and earlier detection, better treatment outcomes, more efficient clinical trials leading to reduced time to market.

Australia’s life science ecosystem worth more than $8 billion in annual revenue.

Annual growth projected at 3% from 2021-2026.

5 key themes underpin Australia’s burgeoning health and biotech space.

Australia has a growing medicinal cannabis sector with 16 stocks listed.

5. Improving clinical trial efficiency

Clinical trials are expensive to recruit, run and interpret. Contract research organisations (CROs) worldwide help with recruitment of patients into trials.

There are always issues around recruitment – it might take longer or they don’t always get the right patients. Big pharma seeks innovation and efficiency in clinical trials.