Medical advances that are leading pharmaceutical firms to manufacture drugs that have no generic substitutes mean investors could reap big profits.
Many fund managers and investors have steered away from drugs companies over the past decade as patents on their biggest earning products lapsed and allowed competitors to make cheaper and effective rival products.
But that time has ended after a decade, says James Thomson, manager of the Rathbone Global Opportunities Fund.
He explained many drugs companies changed tack to produce fewer but more sophisticated products in the intervening years that are less likely to have generic copies.
“For several years in a row, the big pharms lost their patents and their business was torn to shreds by companies producing cheaper products,” he said.
“Now, breakthrough drugs with no substitute, complex treatments for rare diseases and other drugs that are difficult and expensive to make will mean the big pharmaceutical giants will be able to set and maintain prices.”
Mapping the human genome was the game changer, according to Thomson.
“Until the genome was fully mapped, scientists and doctors had huge gaps in their understanding,” he said. “But completing the map filled the gaps and allowed them to produce drugs based on genetics which target specific conditions.”
He says treatments for Alzheimer’s disease, hepatitis C, type 2 diabetes and heart disease are awaiting approval and that they will be almost impossible to replicate by smaller laboratories.
“These new drugs mean pharmaceutical companies will see growth accelerate from a measly 3% a year and return good dividends from profits,” said Thomson.
Time to buy into pharmaceuticals
He believes the drugs will tap into a vast market that has never been tackled before and give good reason for investors to buy into pharmaceuticals.
“The sector has been a no-go zone for investment for many years, but I believe we have around five years of growth ahead which will be a golden age for pharmaceutical companies and their shareholders,” said Thomson.
He recommends two companies – Gilead Sciences and Amgen.
Around 3% of his fund is related to pharmaceuticals at the moment, but Thomson explained he is aiming to up this share to 10% over the coming months.
Pharmaceuticals and biotech start-ups are also backed heavily by the UK government, with grants and tax breaks under the Seed Enterprise Investment Scheme (SEIS) aimed at encouraging investment in the sector.