IN THE past two years, I’ve spent most of my time researching what I consider to be the most exciting area for investment in the next decade – life sciences, particularly novel drugs.
The reason all investors should be excited about what might loosely be called biopharma has a lot to do with advances in computing power.
Most of us see technological progress in the form of smart phones, hi-res TVs and iPads, but beneath the surface a lot more is happening.
In particular, the implications of this for drug development and human life extension are vast. The sequencing of the human genome, and the earlier discovery of the shape and purpose of DNA, has unveiled a road map for scientists. That map will now be used, in conjunction with super-powerful computers, to design “personalised medicines” which will overcome most known diseases within the average person’s lifetime.
By designing delivery systems and specific compounds which target the mutations that cause disease in a very accurate way, almost all cancers will be curable, if not cured, within ten years. Other disease areas to be be addressed will include obesity, diabetes, pulmonary disease, and neurodegenerative illnesses like Alzheimers, osteoarthritis and rheumatoid arthritis.
The old model of small molecule discovery, where thousands of compounds were tested on specific diseases to see if the target compound “locked” on to the cellular receptor, is being supplanted. This is because so-called biologic drugs (made from living processes such as fermentation or recombinant DNA) are becoming more important. Companies are also more adept at shaping drug trials to lessen time to market and improve failure rates, by using genetic testing to see which patients will respond to which type of compound.
A lot of these drugs are being developed by smaller, more innovative companies, rather than the so-called Big Pharma, which dominated the landscape in the 1980s and 1990s. Indeed, because many Big Pharma companies have faced a patent cliff (where a patent expires on a blockbuster drug), they have turned to partnering with smaller companies, or acquiring them outright.
This year, there have been many examples of large companies bidding for smaller ones (Inhibitex, Ardea, Illumina, Amylin are just some recent examples of companies being subject to $1bn or more bids).
But the patent cliff has been exaggerated for quite a few Big Pharma companies, and several remain formidable cash-generating machines.
There is no specific model for the pharma industry, but there is no doubt that the marketing clout of Big Pharma remains strong, and indeed, in the emerging markets, which have very small drug sales per capita (e.g. $10-20 in China, compared to $800 in the US), they have unique advantages. In these markets, Big Pharma firms have a strong reputation for quality and integrity, which leads to consumers trusting them over local firms.
Emerging market growth is a reason why I recommend some Big Pharma names as investments. They have the same characteristics as cigarette companies, as emerging markets represent their greatest opportunity.
Any investor looking to invest in this booming field should have about 60 per cent of his or her portfolio in big names. Roche, GSK and Pfizer are among the best.
In smaller companies, I like Synergy, with a Phase 3 (late stage) drug in development for gastro intestinal disease, Arrowhead, for so-called short interfering RNA (cell manipulation), Plethora, a UK company involved in sexual health, and Summit, another UK company involved in a rare but serious orphan disease, Duchenne's muscular dystrophy.
These shares are all listed and I have holdings in all of them.
Jim Mellon is an entrepreneur and former fund manager. He is chairman and co-founder of Regent Pacific Group and director of Charlemagne Capital.
Cracking the Code: Understand and Profit from the Biotech Revolution That Will Transform Our Lives and Generate Fortunes by Jim Mellon and Al Chalabi is available now (Wiley, £16.99)