Biotech is a standout sector in The Art of Smart data. Not only is it the most prominent subsector in healthcare, but in the entire index. It also dominates the growth rankings: 11 of the top 20 companies ranked by overall growth (across all industries) are healthcare companies headquartered in the United States — and of those, eight are in biotech.
That’s surely no coincidence, but why is this? What commonalities can be observed in the decisions behind this success? And what, if anything, can businesses in other sectors learn from the Biotech example?
Investing in innovation
Investment in research and development (R&D) is a major factor with record amounts of private funding flowing into biotech last year1, although given the high costs involved in getting products to market, some commentators argue that even more is required to fully exploit its potential.
This is a sector that is continuously having to adapt: unlike in many other verticals, in Biotech (and pharmaceuticals generally) exclusivity [of patents and other intellectual property] is known to disappear in time. Businesses are perhaps better placed to anticipate the death of certain income streams in the future and innovation is built in accordingly. This long-term view requires significant upfront investment.
Thankfully, market dynamics are attractive, given the world’s growing and ageing population, but what investors are really backing is innovation that will lead to important advances and solve problems.
Pam Hrubey, Managing Director of Crowe LLP Consulting Group, explains that in this sector, attracting investment is about identifying an unmet need or developing next-generation processes. In healthcare, that could mean focusing on “orphan” (extremely rare) diseases, as Seattle Genetics (ranked 18th overall) is doing, or improving patient care, as with Stryker’s (ranked 54th overall) focus on improving patient outcomes in back pain–related procedures, knee replacements and even stroke-related treatments.
Andrew Hessel, CEO of Humane Genomics, a developer of virus-based therapies for cancer, and founding faculty of the bioinformatics and biotech track at Silicon’s Valley’s Singularity University, makes a similar point regarding investment in biotech in food production. For example, as the earth’s ecosystem comes under increasing pressure to provide for changing demographics, the drive to find alternatives to meat via synthetic processes that create vegan “meat” products and to deliver more efficient and environmentally friendly farming practices is becoming intense.
As in other industries, highly specialized ideas for cutting-edge products and techniques that improve quality of life or user experience, and the ability to capitalize on them, are as important as the macro trends shaping the market itself.
Investment may be a key to unlock success, but it takes smart decisions to secure it, particularly in a highly regulated environment where scrutiny is stringent and several stages of support may be needed over a decade or more to allow for clinical trials before treatments get to market. Having a robust communications strategy right from the start is vital, both to navigate regulatory requirements, and to help companies make a strong case so they can attract the funding (or acquirer) they are looking for. For example, if a company can demonstrate that its team has the right capabilities and dynamics to deliver an innovation successfully, investors will have confidence even at an early stage. Clearly, this translates into other sectors too.
Technology — a decisive factor?
As the name suggests, technology can be a success factor for some biotech companies, but in this sector, it’s often the way that technology is deployed that matters most. Mindy Herman, Principal and Life Sciences Consulting Leader at Crowe LLP, makes the point that in the main, these are research-focused businesses that use tech tools to support and facilitate their work, rather than being tech-focused2.
That’s not to say that tech is not transformative. Robotics is set to revolutionize labs, and pharma companies will increasingly seek to leverage the power of artificial intelligence (AI) to deliver new ideas, for instance, by scanning their libraries to identify new drug candidates.
Andrew Hessel adds that the tech tools available as the industry digitizes are becoming much more powerful, easily accessible and far faster, so that processes can be rapidly accelerated, and startups can leapfrog more established rivals in a way that would not previously have been possible. What’s more: “This growing base of tools is opening up more and more possibilities for the development of new medicines and other biotech applications. It’s a feedback loop.”
Of course, something similar is happening across many industries to a greater or lesser degree. Perhaps what companies in other sectors can take from biotech’s example is the extent to which technology can be an enabler for efficiency gains and for opening up new avenues for exploration. In the future, Hessel believes, as biotech becomes increasingly digitized, the opportunity to capitalize on an even more diverse range of potential applications — for instance, in areas such as building materials or textiles — will continue to grow, inspiring a new wave of advances.