Over the next century, biotechnology will likely go a long way toward shaping society, and family offices will be vital to providing the investment capital needed to help the sector progress the world of tomorrow.

But biotechnology has a particularly difficult investment landscape. A failed treatment thesis, an ineffective drug or medical device, and an evolving regulatory environment can cripple the best ideas and intentions.

To identify the rare clinical successes amid the multiple setbacks that often occur in biotechnology, family offices will want to consider actively managed strategies with deep backgrounds in biotech investing that also employ risk-hedging tools.

Why family office biotech investment needs a multifaceted approach

Family offices looking to achieve returns in biomedicine need to understand the underlying science and commercial opportunities of a new product and judge whether the parent company is currently trading at a fair price relative to this intrinsic value. Doing so correctly can be challenging. Industry research shows that 90% of drugs that enter human clinical trials will never make it to market, and of medicines that do launch, investors either over- or underestimate a drug’s peak sales potential 90% of the time.

Making it even more challenging is that today’s large biotech winners – which are all well researched by analysts – are less likely to be the winners of tomorrow, as small- and medium-size companies now drive the majority of the sector’s innovation.

Investors face other hurdles. In 2023, the US Food and Drug Administration approved a record 73 novel medicines¹. Yet, the biotechnology sector declined for the year as a result of elevated interest rates and negative investor sentiment.

In that environment, successfully delivering positive returns can involve the use of more complex investment instruments, including options, futures contracts, and inverse ETFs (Exchange Traded Funds). These additional tools help provide risk management, as well as the opportunity to capitalize on negative binary events (i.e., a clinical trial failure), but need to be managed actively so that gains are also captured when the sector begins to outperform.

Three opportunities for investors

Encouragingly, the commitment of massive resources – financially, socially, and scientifically – has driven significant advancements in biomedicine over the last decade.

We’ve seen enormous progress in areas such as , personalised medicines and targeted therapies, as well as the rapid response to COVID-19, all of which promises to help advance humanity. From our perspective, three of the most exciting areas of healthcare innovation today are:

1. Antibody-drug conjugates (ADCs)

ADCs are a gamechanger when it comes to cancer treatment. Cancer cells have distinct markers that distinguish them from healthy tissue. With ADCs, scientists design antibodies – a part of the immune system – to target those markers and deliver chemotherapy directly to cancerous cells, while sparing healthy tissues. Put another way, ADCs, act like precision-guided missiles that bring chemotherapy directly to cancer cells, with less collateral toxicity.

The ovarian cancer drug Elahere is one example of ADCs’ potential. In clinical trials, Elahere delivered a 33% reduction in mortality risk for ovarian cancer patients compared to chemotherapy, the first time an overall survival benefit was achieved in chemo-resistant patients. The drug was developed by ImmunogGen, and in 2023, AbbVie acquired the company for $10 billion.

2. GLP-1s

Over the last year, glucagon-like peptide 1 (GLP-1) receptor agonists have made headlines for their ability to deliver significant weight loss. Among GLP-1s that have come to market, patients taking the drugs have achieved average weight loss of 15% to 20%, levels once possible only through surgery.

But even more important is the positive knock-on effects that GLP-1s could have on overall patient survivability. In ongoing studies, GLP-1s have shown to significantly reduce the risk of cardiovascular disease, stroke, sleep apnea, fatty liver disease, and other serious conditions, strengthening the case for patient uptake and reimbursement by health systems. And while Eli Lilly and Novo Nordisk lead the GLP-1 market today, we think the industry has room to expand as companies research more effective formulations. As such, we think the GLP-1 market could reach $200 billion in global annual sales over the next decade, which would be the largest pharmaceutical market we’ve ever seen.

3. Artificial intelligence

Typically, it takes at least 10 years and billions of dollars of investment for a company to bring a new therapy to market. But AI algorithms could help speed at least one part of the research and development process – target identification and drug discovery.

Today, AI algorithms are being developed to identify drug targets and create molecules by modelling biological and chemical datasets. Advances continue to be made, with new tools now able to decode the shape of proteins – large complex molecules in human cells that drive the structure, function, and regulation of the body’s tissues and organs – and how they interact with DNA, RNA, and ligands (molecules that bind to a receiving protein molecule, or receptor). Such level of complexity could lead researchers to an even deeper understanding of the biology of disease and speed up the process/lower the cost of bringing new drugs to market.