By Ailsa Craig and Marek Poszepczynski, portfolio managers at International Biotechnology Trust (IBT)
Despite the progress made across the biotechnology sector in recent years, it is still seen by many investors as being defined by early-stage science and binary outcomes. This perception reflects the opportunity set of the past, when success or failure was driven largely by the results of individual clinical trials.
While clinical outcomes remain highly relevant, a more mature profile is now emerging, with a growing proportion of companies moving beyond clinical risk into a new phase of development. Many are now approaching commercialisation, supported by late-stage pipelines, an increasing number of approved therapies and clear regulatory pathways.
The key question for investors should therefore be shifting from whether the science works to how commercially successful therapies may become once on the market.
Biotech’s evolving profile
Biotech’s growth profile is changing. Revenues are currently driven by a handful of large, profitable companies with approved therapies, but a broader wave of innovation is now moving towards commercialisation, with future growth expected to come from new product launches across a wider range of companies.
Growth predictions are already impressive, but revenues could exceed expectations, as management teams often have greater confidence in long-term potential than reflected in forecasts. That gap can create opportunity, particularly as valuations appear to underestimate the scale of the growth ahead.
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Delivering on current expectations, greater appreciation of commercial prospects and outcomes exceeding consensus expectations could all drive value, while the largely clinically de-risked nature of these businesses means downside should be limited.
The opportunities from this evolving landscape can be seen in practice across companies at different stages of the path to commercialisation.
Terns Pharmaceuticals
Terns Pharmaceuticals is an oncology business in the development stage that is now approaching pivotal Phase 3 trials. Its lead programme, TERN-701, targets chronic myeloid leukaemia, a type of cancer that develops in the bone marrow, by inhibiting the abnormal gene that drives the disease.
Oncology is an exciting therapeutic area, but competition is intense, so focusing on assets that have the potential to meaningfully move the standard of care forward in particular indications is important. TERN-701 fits the bill as a high-potential, next-generation therapy, with clinical data pointing to improved efficacy, tolerability and ease of use compared to existing treatments.
Recent positive clinical readouts have driven a strong share price response, reflecting growing investor confidence in the programme’s trajectory. Even so, with pivotal trials still to come, late-stage clinical failure remains a possibility. Terns is funded through to trial completion, and TERN-701’s long-term commercial potential has been recognised by Merck, which recently made a bid to acquire the company.
Vera Therapeutics
Further along in development, Vera Therapeutics is working on a therapy for IgA nephropathy, a chronic autoimmune kidney disease that can lead to kidney failure. Atacicept, Vera’s lead asset, addresses the root cause of the condition.
It forms part of a new generation of disease-modifying therapies reshaping treatment for this indication. As a second-to-market therapy, atacicept is differentiated by its auto-injector delivery and mechanism, offering the potential for improved patient experience alongside clinical benefit.
With a US Food and Drug Administration (FDA) decision scheduled for July 2026, Vera now sits on the cusp of approval and is transitioning from clinical validation towards commercialisation. Regulatory outcomes are never guaranteed and delays are possible, but Vera’s investment case is increasingly defined by commercial potential rather than clinical uncertainty.
Apellis Pharmaceuticals
Already at the commercial end of the spectrum sits Apellis Pharmaceuticals, which has two assets approved and in the early stages of launch. Its technology targets a part of the immune system involved in disease progression, enabling the development of treatments across very different conditions.
Apellis’s technology is enabling progress in diseases that have long lacked effective treatment options. The ability to apply this underlying approach across multiple conditions suggests the potential to replicate the success of its two lead assets in additional pipeline programmes.
With commercial uptake now underway, the focus has shifted from clinical validation to delivery. While the commercial ‘ramp’ is never without uncertainty, Apellis represents a business where future value creation will stem from execution and adoption rather than scientific discovery – a view shared by Biogen, whose recent takeover bid underlines the company’s long-term potential.
Reaping rewards
While biotechnology is still often perceived as an early-stage, high risk sector, despite already generating meaningful revenues today, this perception no longer fully reflects the reality of a maturing opportunity set. Forecasts may prove too high or too low, but by exploring businesses already advancing towards commercial relevance, an opportunity is presented between current expectations and long-term potential.
As commercial progress is delivered, the narrowing of that gap between perception and reality should increasingly translate into tangible rewards.