The enormous progress in the development of medicines, especially vaccines, has made the pharmaceutical and biotech industries the focus of public and investor interest in the last two years. Especially the forward leaps in biotechnology, for example in MRNA technology (messenger RNA), give rise to hopes of better treatment options for widespread diseases in the time after the Corona pandemic. For investors, in addition to investing in the big pharmaceutical and biotech companies, there are also opportunities from other companies involved in the value chain.

For this purpose, a look at the phases of the development of new active substances is useful.

Phase 1: Drug discovery and pre-clinical studies

This is the economically riskiest phase of development. In basic research studies, the goal is to identify promising molecules and to prepare and plan clinical trials. Suppliers involved in this early phase are the manufacturers of laboratory equipment such as measuring devices and analytical tools or software such as the market leader Thermo Fisher.

Phase 2: Clinical trials

Conducting clinical trials is costly and capital-intensive. Smaller biotech companies outsource this to so-called CROs (contract research organizations). Large companies in this field are, for example, ICON, IQVIA and PPD, which belongs to Thermo Fisher. Manufacturers of laboratory equipment are also involved as suppliers in this phase.

Phase 3: Production and marketing of approved drugs

After successful approval of an active ingredient, a phase follows in which other companies are often involved in addition to the patent holder. Extraction of the active ingredient, incorporation into medicines, packaging, storage and distribution form the final phase of the value chain. Again, these steps are often outsourced to external companies, so-called CDMOs (contract development and manufacturing companies). Major players are, for example, the Swiss company Lonza as well as divisions of the US giants Danaher and Thermo Fisher. Suppliers of special production technology and equipment or of packaging materials (e.g. disposable syringes for vaccines) also come into play here.

Conclusion: Opportunities and risks for investors

The coming years and decades promise further structural growth in the pharmaceutical and biotech industries. The potentially greatest opportunities for profit lie with the successful patent holders of innovative medicines. However, the chances of a successful drug cannot always be clearly estimated. For every successfully approved drug there are usually many failed or uncompetitive products. From a risk point of view, shares of companies with an already bulging development pipeline are at an advantage. In order to profit from the structural growth of biotechnology, it is also a good idea to invest in companies that are active as suppliers or contract manufacturers for the large pharmaceutical companies, the small biotechnology companies and government or university research units. Companies like Thermo Fisher cover the entire value chain and are insofar independent of which biotech company ends up ahead in the race for approval.