Make Your Move: Life Sciences: Biotechnology

Sept. 11, 2012
  Alan Beaulieu            

Look at the economic data today and you will find that most sectors of the US economy are expanding. Now to be fair, the growth rate in many industries is slowing, giving people that sinking feeling that slower growth soon will turn into no growth at all. This is the nature of business cycles—faster and slower growth, pocketed by periods of recession. We expect that US industrial production, our benchmark for the economy, will continue to expand over the next 12 months. Keep in mind that a “soft landing” in the economy (slower growth followed by re-acceleration) is actually far more common than recession: Seven out of the last 10 business cycles have been soft landings. Our collection of leading indicators that help shape our picture of the economy three to four quarters in advance are unanimously signaling ongoing improvement in the US economy. If you have been following ITR Economics, you will know that beyond 12 months we are seeing a mild recession in the US economy. This forecast suggests a clear plan of action: We have 12 months to lock in contracts, pursue new markets and position our businesses to combat a weaker market in late 2013/2014.

One of the best fields to position your company for ongoing profitability is in the life sciences. A growing global population means increased stress on our food supply and demand for medical services, both areas that advances in technology can help alleviate. Demographically, the US is poised for a large increase in the need for medicine due to our aging population. The combination of climate change and higher transportation costs is putting additional strain on the affordability of our food supply. Biotechnological developments are fulfilling the increasing global demands for people to live longer and eat more.

Biotechnology is a relatively new and growing field, with a strong demand from the health, agricultural and industrial sectors for product innovation. The United States is in the center of the biotech industry; 60% to 70% of all biotech patents made in the major economies are initially registered with the US. Biotechnology is an approximately $90 billion-a-year industry thanks to steady increases in revenue in each of the past 10 years, with the only exception being the recession year of 2009. While other areas of the medical industry have their qualms with health care reform, biotech is poised to benefit from the Affordable Care Act (ACA) by means of patent reform and tax breaks for small to midsize firms. The new patent structure under ACA gives a firm a 12-year patent license to new technologies, replacing previously ambiguous language.

Government involvement in biotech could, unfortunately, be the industry’s Achilles heel. Biotech is highly regulated, and federal, state and local government comprise 30% of total industry demand between research, medicinal, agricultural and various military uses. With budget crunches and an increased federal role in health care, the industry could face some challenges from fluctuating public-sector demand.

Overall, the good outweighs the bad in this industry. An increasingly wealthy world will only continue to demand more from human health services, and the longer people live the more strain is put on global food supply. The compounding upward momentum in demand for food and health makes the life-sciences industry and the biotechnology sector an ideal candidate to build your business and investments over the next year and protect against the weakness we are expecting throughout the economy in late 2013/2014.

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