Biotech's new battlegrounds

The biotechnology sector is undergoing rapid change. The global market, which was valued at $390.1bn in 2017, is projected to grow at an annual average rate of 7.7% until 2026, according to Polaris Market Research. 

Since 2014, global greenfield investment in the biotechnology sector has surged. For example, in 2018 greenfield investment monitor fDi Markets tracked a record 158 announced greenfield FDI biotech projects, with an estimated total value of $6.96bn. This compares with just 67 projects in 2014 and an average of 84 projects annually in the previous decade. 

Commonly known as ‘biotech’, the sector involves the use of living systems and organisms to develop technologies and products. Involving the utilisation of biomolecular and cellular processes, major applications include medicine, agriculture and industrial processes. 

While its varied applications can result in methodological issues around the classification of investments in the sector, biotech has been one of the fastest growing segments within the wider life sciences cluster. Greenfield investment in life sciences – which encompasses biotech, pharmaceuticals, healthcare and other areas of health improvement – has grown at an annual average rate of more than 5% since 2012. 

Small but mighty

Biopharmacy, or the production of drugs by biological methods, was estimated to have a greater than 60% share of the global biotech market in 2017, according to Polaris Market Research, and more than 90% of the biopharmaceutical industry is made up of small, emerging companies, according to the Biotechnology Innovation Organization (BIO), a global trade association. 

“Things have changed from 10 to 20 years ago, where the large companies were the ones to keep track of. These days, the innovation is coming primarily from the small companies,” says David Thomas, BIO vice-president of industry research. In the molecular development market, for instance, emerging companies now account for more than 70% of the total pipeline, according to IQVIA Pipeline Intelligence. Venture capital (VC) investment into the sector has followed this trend. 

VC investment into biotech grew at an average annual rate of 26.1% in the five years to 2018, reaching a record $14.58bn across 750 deals, according to private capital data provider PitchBook. The following year was also strong, with $14.24bn of VC biotech investment across 678 deals.

US dominance

The US remains the world’s leading country to set up biotech operations, attracting 29% of all greenfield projects announced in the sector since 2012. Furthermore, US-based biotech start-ups attracted almost three-quarters of global VC investment in 2018.

"The US is the most profitable market for drugs, as it is where companies can charge the highest prices; it is the leader in biotech scientific innovation; and the financial markets provide ample capital for biotechs to fund their operations,” says Geoffrey Hsu, general partner at OrbiMed Advisors, a healthcare investment firm.

In a comparative study of the 20 largest recipient countries of greenfield biotech projects undertaken on fDi Benchmark (an investment destination comparison tool that assesses locations in terms of cost and quality), the US ranked as the highest quality location to set up a life sciences R&D centre with a score of 225.48. It was followed by China (141.66) and Germany (138.74). 

China rising 

Despite the US’s appeal and dominance, China has increasingly become a hotbed for the biotech industry. China’s share of global VC investment into biotech climbed from 2.1% in 2013 to 11.65% in 2018. “Within China there is more aggressive investment and expansion to get access to the innovation that’s starting to appear there,” says Mr Thomas.

Many major life sciences companies have invested into China, which is the world’s second largest pharmaceutical market. Germany-based Merck Group, which operates across the healthcare, life sciences and performance materials fields, recently made a significant investment in Wuxi in eastern China to “accelerate the development and manufacturing of biosimilars for our customers in this key market”, says Udit Batra, a member of the Merck Group’s executive board and CEO of life science.

“In China we see sustainable demand driven by demographics and increasing living standards; [namely] affordability as well as a higher emphasis on quality and product safety, as well as governmental strategic positions,” he adds, referring to the aim of the Chinese government’s 13th Five-Year Plan to increase domestic production of biopharma materials to a figure between $1200bn and $1500bn in 2020.

Some biotech companies have made a strategic effort to replace foreign licencing relationships through partnerships in China. US-based biotech firm Amgen, which had $19.2bn of global biotech drug sales in 2018, recently entered a strategic partnership agreement with Beijing-based BeiGene to develop its entire oncology portfolio for China. “This is unprecedented and shows a willingness and different strategy to go into China with products that were actually discovered in the US,” says Mr Thomas at BIO.

UK-based AstraZeneca has also increased its commitment to the world’s most populous country. The biopharma giant announced seven separate greenfield investment projects in China in November 2019, including both an AI innovation centre and global R&D centre in Shanghai, as well as five regional headquarters across China.

Following the announcement, AstraZeneca CEO Pascal Soriot said: “China is rapidly emerging as a global scientific powerhouse, which is why we have taken this exciting decision to follow science by expanding our R&D presence and by working with the investment community.”

R&D revival

Amid several recent scientific innovations, especially in the areas of gene and cell therapy, R&D expenditure in biotech has been ramped up. Worldwide R&D spend by pharmaceutical and biotech companies rose to a record $182bn in 2019 and is expected to grow at 3% per annum over the next five years, according to Evaluate Pharma. 

Despite a reduction from 4.2% average annual growth between 2010 and 2019, the uptake of biotech products in the industry is expected to rise from 28% to 32% in the next five years. 

Announced greenfield R&D investment in biotech stood at a record $4.4bn in 2018, according to estimates from fDi Markets. R&D announced FDI project numbers have also increased steadily since 2014, reaching a record 45 in 2019. “[R&D] is an area of biotechnology that is very dependent on crossborder collaboration,” says Mr Thomas. Manufacturing project announcements, as well as in sales, marketing and support, have risen in recent years as companies seek to produce and sell their drugs in more places around the world. 

Against a backdrop of scientific innovation, regulations enabling new drug approval and the globalisation of drug markets, the biotech FDI boom was sustained in 2019. Some 146 projects and an estimated $4bn of investment were announced, according to the latest data from fDi Markets. Burgeoning crossborder biotech investment opens up lucrative opportunities for locations that are vying for higher value-added FDI.