We’ve been following pharma and biotech companies since the early 80s. We’ve seen many changes take place. Early start-ups have matured into profitable dividend payers, and new small companies have appeared. Over the last several years, these companies have been punching bags and stock prices reflected it.
That seems to be changing fast. COVID-19 has brought the biotech industry front and center. Every day we are learning about new innovations and technologies that promise a better tomorrow. Just as technological innovations in phones, computers, and software lead the last decade, it appears life sciences will lead this decade. Instead of our children learning how to “code” in software, they will learn how to “code” the human genome. The interesting thing is you can invest in the older, mature companies or newer companies.
After being vilified because of rising drug prices, many of the larger companies trade at a below-market multiple and above market yield. Thanks to artificial intelligence and a more streamlined FDA, the new drug approval process is coming at a much faster pace, which COVID-19 has only accelerated. This means shorter approval times to market and longer patent life on a drug. We’ve seen many buyouts of smaller companies at premiums to their current stock price by the larger pharma companies. The large companies can offer dividends yields and the smaller companies can offer faster growth.
This is a very disturbing time for everyone with the COVID-19 pandemic underway. However, investors are beginning to consider the implications to biotech. After all, would you rather have a new phone or a vaccine that might save your life?