Filed under: Biotech ETF
There are some new trends in the biotechnology industry that are expected to drive growth this year and beyond. These trends are the result of major advances in technology and could provide a significant boost to the fortunes of the sector. Understanding these trends could help you to make the right biotech investment decisions.
There are significant advances in the science of genetics that are pioneered every year and the latest excitement is being created in the area of genome sequencing. Genome sequencing is the process by which the entire DNA in an organism is read and decoded. The process used to take several weeks and could cost millions of dollars. It now takes one day and $1000 and during the course of this year, this is expected to become a few hours and $500.
You should regard the DNA sequence much like the coding sequence for software because reading it helps scientists to understand the functioning of the organism. This opens up many exciting new areas of opportunity. For instance, scientists used the technique in Germany to read the DNA of the E. coli bacteria during an outbreak last year. They were thus able to determine which antibiotics would be effective and which would not. Similarly, scientists can use the process against the genetic mutation of some forms of cancer in order to determine the most effective chemotherapy.
In fact, the development of effective genome sequencing has happened so quickly that scientists are still figuring out how best to use the information. But with the dramatic reduction in time and cost, it is not hard to figure out that there will be lots of opportunities for research to progress effective treatments for diseases such as cancer. Scientists can work out the most effective therapy not only for cancer but also for many other diseases. Importantly, it could help them to avoid therapies that are not particularly effective but have harmful side effects.
The other important trend is the shopping spree that large pharmaceutical companies have started beginning with the acquisition of Pharmasset for $11 billion by Gilead Sciences in November last year which is a premium over the market price of almost 90%. The purpose of the deal was to obtain access to the hepatitis C drug which is being developed and is still years away from approval. A deal for a similar kind of drug was announced early this year by Bristol-Myers Squibb for Inhibitex for a mind blowing premium of over 160%. The transformation of the baby boomer generation into senior citizens is going to result in a substantial increase in health care spending and all the majors are lining up to get their share of these dollars. The acquisition spree is therefore expected to continue.
You can share in this exciting outlook for the biotech sector by adding some exposure to your investment portfolio. As for the retail investor, it is imprudent to invest directly because of the lack of knowledge and the skills required. However, the desired exposure can be acquired inexpensively by investing in biotech ETFs which will provide both diversification and risk management.