Life Sciences Revolution Unlocks Potential in Tools, Diagnostics, and Therapeutics
We believe this life sciences revolution has created exciting opportunities for select businesses to create value and generate wealth for long-term investors.
The coronavirus pandemic has highlighted the importance of the healthcare ecosystem and demonstrated the rapid innovation cycles taking place in life sciences. Numerous research breakthroughs in recent decades enabled scientists to develop COVID-19 vaccines in record time. However, we are only beginning to see the far-reaching effects of this life sciences revolution, which has the potential to improve patient outcomes and healthcare economics globally.
The complex process of drug development has typically taken years to go from discovery to commercialization. However, researchers were able to take the COVID-19 vaccine from concept to the public in less than a year. Scientists’ ability to rapidly sequence the virus’ genome was one of many factors that allowed researchers to begin developing diagnostics and therapeutics targeting the virus within weeks. Though we cannot expect the research community to function at the same breakneck speed for other diseases, we do foresee an era of faster drug discovery and deployment.
While the COVID-19 pandemic shone a light on the most recent innovations, Sands Capital has studied the evolution of the life sciences sector for many years. Technological advances and biological breakthroughs have allowed a better understanding of the causes of disease, opening the way to earlier diagnosis and more precise treatment. We believe this life sciences revolution has created exciting opportunities for select businesses, particularly in the areas of life sciences tools, diagnostics, and therapeutics. As new technologies lower the barriers to entry, we expect earlier-stage businesses, many of which are still private, to create value and generate wealth for long-term investors.
A Multidecade Growth Story
We believe that we are only at the beginning of a multidecade growth story for this dynamic and rapidly evolving sector. Twenty years ago, sequencing the entire human genome cost some $100 million. Today, that price has fallen to less than $700.1 As in many areas of life sciences, lower costs led to increased opportunities for experimentation and discovery, which ultimately accelerates the pace of innovation. While sequencing is one of the best examples of a tool that has become remarkably accessible, it is only one among many potential beneficiaries of this acceleration. Indeed, we are also excited about similar trends in other areas, including proteomics, the large-scale study of proteins.
At the same time, the worldwide demand for new technologies and therapies continues to grow. Notably, the global population of people age 60 and over is set to reach or surpass 2 billion by 2050, creating a greater disease burden for society and a need for continued innovation across the life sciences.2
Define, Diagnose, Treat
Define: Life sciences tools businesses enable researchers to automate and scale experimentation while also uncovering new aspects of biology. These tools include gene sequencers, flow cytometers, liquid handling robots, and many other products that allow researchers to delve more deeply, and with greater efficiency, into the causes of disease. While sometimes overlooked, this subsector within the life sciences is an engine of continuous discovery.
For instance, new proteomics tools allow scientists to characterize thousands of proteins in a single sample, which is orders of magnitude higher than what technologies from earlier decades could achieve. Such stepwise changes in experimental capability have opened the way to rapid innovation; and over time, we believe the proteomics space could be as transformative as the genomics space.
Tools companies typically employ a razor/razor blade business model in which customers purchase an instrument that drives subsequent pull-through of related consumable products. We see opportunities in life sciences tools because many of these companies provide enabling technologies for diagnostic and therapeutic companies yet tend to have less direct exposure to certain risks, such as clinical trials and policy shifts.
Diagnose: More powerful life sciences tools have enabled businesses to develop diagnostic technologies that reduce the cost of care while improving patient outcomes. These technologies, which include liquid biopsies, imaging techniques, and genomic profiling, represent the front line of patient care.
For instance, invasive diagnostic procedures are increasingly being replaced by noninvasive molecular tests, such as liquid biopsies, that can provide a similar level of accuracy while greatly reducing the burden to the patient. Though the liquid biopsy market is in the early stages of development, we can envision a future in which patients and physicians receive critical diagnostic information from a simple blood draw. As the liquid biopsy space evolves and new applications are developed, we believe this approach will replace antiquated diagnostic models that are more expensive and less accessible to the broader population.
More frequent and precise methods of testing for disease should enable more accurate detection of disease and at an earlier stage. Earlier and more specific diagnosis should pave the way for more effective and actionable therapeutic interventions.
Treat: Enabling life sciences tools and precision diagnostics are making drug development more efficient and leading to improved therapies. Moreover, we are witnessing a proliferation of novel treatment methods that allows us to treat previously untreatable diseases. For instance, we have seen firsthand how cutting-edge gene therapy treatments can deliver lifesaving benefits to pediatric patients with devastating neurological diseases. Breakthroughs such as these lead us to believe that an era of truly personalized and precision medicine, delivering profound results to patients in dire need, is emerging.
The way in which drug discovery is carried out is rapidly evolving. Companies developing small molecule drugs can sample chemical space more effectively and efficiently to identify drug candidates against targets previously considered undruggable. In addition, researchers are leveraging new biologic modalities, such as cell and gene therapy, to better address certain diseases of high unmet need. In many ways, drug discovery is evolving into drug engineering, as scientists increasingly leverage prediction and synthetic biology to create novel therapies and therapeutic modalities.
These novel therapies benefit from clinical trials that leverage precision diagnostics for enrollment and tend to be more likely to succeed. Genetic profiling of patient tumors, for instance, allows biotech companies to enroll patients that are most likely to respond to targeted therapy. Over time, we believe that the simultaneous development of precision therapies and diagnostics will increase the number of diseases that can be effectively treated.
From Revolution to Evolution
As we move into this new era of life sciences discovery, we imagine a proliferation of tools and diagnostics that leverage massive amounts of information from patients and large-scale databases. Indeed, the life sciences industry’s ability to generate large amounts of data has challenged companies to find ways to make sense of the disparate pieces of evidence. As a result, platforms that employ machine learning and computational biology are emerging to help researchers glean insights from immense datasets.
We expect that the life sciences tools, diagnostic, and therapeutic companies that can best harness and utilize such data will enjoy an even greater competitive advantage, creating value and attracting investor interest. As earlier noted, we believe that some innovative early-stage businesses, benefiting from lower costs of entry, are well positioned to make inroads in these spaces.
As rapid scientific breakthroughs continue to transform life sciences, we envision that select, cutting-edge companies in the field will be attractive sources of value creation for the coming decade and beyond. Our research team is excited about the expanding opportunity set of private and public businesses. Furthermore, we are confident that our domain knowledge will enable us to evaluate the emerging innovators effectively. If we succeed in identifying and investing in the leading businesses early, we expect not only to add value and enhance the wealth of our clients over time but also to support advancements in healthcare standards globally.
1 The Human Genome Project, https://www.genome.gov/human-genome-project
2 “Ageing and health,” The World Health Organization, https://www.who.int/news-room/fact-sheets/detail/ageing-and-health
The views expressed are the opinion of Sands Capital and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The views expressed were current as of the date indicated and are subject to change. This material may contain forward-looking statements, which are subject to uncertainty and contingencies outside of Sands Capital’s control. Readers should not place undue reliance upon these forward-looking statements. There is no guarantee that Sands Capital will meet its stated goals. Past performance is not indicative of future results. You should not assume that any investment is or will be profitable. GIPS® Reports and additional disclosures for the related composites may be found in the Sands Capital GIPS Report.
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