Why Biologic Drugs Are the Future: A Look at Industry Trends

During their recent episode, Taylor, Carlisle, and Matt Sweeney discussed Why Biologic Drugs Are the Future: A Look at Industry Trends, here’s an excerpt from the episode:

Tobias: Do you see any demand destruction? The sales are impacted as a result of the rates or just the general–? Like, does it give you any insight into the underlying health of the economy?

Matthew: I’m not really a macro guy. Most of my businesses, I think of that more being maybe consumer facing, stuff like that, where you would see that most of my businesses are not really consumer facing. I’m typically looking at, starting with the bottom up, looking at a business where I have a strong understanding of why I think the earnings power is going to be a lot higher, but also then having a top-down view on some specific industry force, which is going to explain why there’s going to be some tailwinds too, independent of whatever rates are doing or the macro is doing.

Just a quick example without saying specific names. I own a couple large molecule CDMOs, so basically biologic drug manufacturers. I can’t think of a single reason. It’s basically impossible for me to believe that 5 years from now or 10 years from now, there won’t be more biologic drugs. High level, if you think of a small molecule drug, think of like Aspirin or Tylenol that might have 25 molecules to make Tylenol or Aspirin and then look at a biologic drug and it might be 25,000 molecules. They’re infinitely more complex.

Most of the simple drugs have been figured out. So, the whole world is going towards more complicated drugs. You could see it in the FDA application process, the percent of the FDA pipeline that is biologic and everything else. You could also see in terms of drug adoption in the US versus less developed parts of the world where the US is increasingly going biologic. Africa, for example, is still primarily small molecule. That’s going to shift over time. The trend behind large molecule drugs, it’s almost impossible to think of how it gets disrupted. If you can combine that with a single stock or a single business where they are set to increase their earnings power against a trend that is pretty much unstoppable, the macro is frustrating in the near term and the stock trades on REITs and everything else. But ultimately, it’s going to be fine, I hope.

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