FinnCap Group PLC (LON:FCAP) has said healthcare companies employing and developing cell and gene therapy (C>) are “driving the next wave of innovation in the pharmaceutical industry”, which in turn is causing an uptick in mergers & acquisitions as pharma giants aim to be at the forefront of the next development in medicine.
In a report released on Tuesday, the brokerage firm highlighted that the trend was personified in the AIM healthcare index, which has risen 6% in the year to date as opposed to a 7% decline for the AIM All-Share index.
Small caps involved in the sector that have seen rapid share price rises this year such as Synairgen PLC (LON:SNG), Avacta Group PLC (LON:AVCT) and Tiziana Life Sciences PLC (LON:TILS), have also led gains in finnCap’s own finnLife 50 index.
The group also reported that the market value of the C> sector is expected to increase to up to US$35.4bn by 2026 from its 2018 value of between US$536mln-US$1.07bn.
M&A is also on the rise given the high number of startups in the sector, finnCap said, with acquisition activity valued at US$49bn in 2018/19 compared to US$5bn in 2014/15.
“Much of this is driven by big pharma firms not wanting to fall behind their smaller, more versatile competition, as they did with monoclonal antibody technology. Consequently, they have engaged with M&A to speed up and enhance their own [research & development] efforts”, the broker said.
“Rather than just treating a disease and its symptoms, C> can target the underlying cause of a disease, with long-term benefits and curative potential. C> is now being realised on an applicable level, with many products already approved and the [US Food & Drug Administration] expects to approve 10-20 products a year by 2025”, they added.
As a result, the report said that now was the time for investors to get involved as the C> sector is “rapidly maturing past its high potential research and development stage – with an established pipeline of therapies already being developed”.
However, finnCap cautioned that there were challenges facing the sector including difficulty in manufacturing the therapies due to their personalised nature as well as a potential reworking of reimbursement systems that are “not used to outlaying so much money up front for a treatment with long-term benefits/curative potential versus continuous, and lower payments for ongoing medicine treatment”.
“Few technologies in the life sciences sector hold as much promise as Cell and Gene Therapy, with its ability to provide long-term benefits and curative potential”, said finnCap life sciences analyst Arshad Ahad.
“These technologies have been seen as the future of medicine for many years, and now we are closer than ever to that future becoming a reality. If Cell and Gene therapy does become the backbone of treatment regimes in the future, similar to the rise of monoclonal antibodies, then the companies involved are developing expertise in a critical part of the life sciences industry, which should confer a significant competitive advantage as the sector matures further. Now is therefore a good time to invest in the ‘future’”, the research analyst added.
FinnCap shares were steady at 23p in late-morning trading on Wednesday.