Biotech boom drives innovation and risks
Billions are being poured into combining key technologies to apply them to ever new areas of biotech, from therapeutics and pesticides to new materials. The resulting innovations are promising, but new risks are emerging at the same time.
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Biotechnology – the merging of scientific and engineering approaches to manipulate biological organisms, cells and molecular structures in order to create new products and services – is booming.
One driver of rapid advances in these technologies is computing power and simulation. Artificial intelligence (AI) and high-performance computing combined with immense data storage capacity can assist in discovering new layers of meaning, hidden connections and patterns from data that would otherwise remain hidden. Such high-speed pattern recognition is already being deployed in cancer screening and other domains of pharmacology and medicine. Methods developed to tackle challenges in one field often find use to solve analogous cases in seemingly unrelated areas.
Expectations of biotech applications are high
The combined market value for biotech technologies was estimated USD 295 billion globally in 2019, generated by 11000-plus companies with more than 880000 employees.1 For the coming two decades, it is estimated that bio-innovations will have direct economic impact in the single-digit USD trillion range globally each year, in the following areas2:
- Human health and performance
- Agriculture, aquaculture, and food
- Consumer products and services
- Materials, chemistry, and energy
- Sustainability
- Bio-machine interfaces
- Biocomputing
Many biotech innovations harbour disruptive potential, such as laboratory-grown meat that could dramatically undercut the global livestock industry, and is already being sold in several markets around the world.3 Biotech applications will transform industrial processes. One European company is using enzymes that have been designed and replicated to recycle 100% of PET plastic waste for use in new bottles.4 Other endeavours apply AI to drug development,5 and give hint to future possibilities, such as quantum computing applied in cancer research and treatment.6 Start-ups harnessing the innovative forces of biotech are blossoming around the world.7
Innovation means new risks
Like all new technologies, however, the biotech promise is accompanied by new risks.8 Here are several risks that financial service providers may need to consider:
- Investment discount rate risk from unprecedented speed of innovation: with exponential growth of computing power, innovation may be outdated more quickly than we think, making today’s hot start-up tomorrow’s stranded asset. It remains to be seen whether the investment boom in biotech will further accelerate.
- Premature application: speed also means unproven products have the potential to create outsized damages. A human doctor can misdiagnose a finite number of patients, whereas quantum computer-aided AI diagnostics could affect millions. For insurers, such incidents could lead to liability, property or L&H claims.
- Complex vs. complicated: the ability to solve complicated problems by combining leading edge technologies may lead to applications of products and solutions in complex systems that are not yet fully understood. This may result in unwanted side effects, potentially raising regulatory issues and insurance claims (eg, in D&O).
- These technologies can also raise ethical and legal challenges, for example in relation to individual privacy. Also biosecurity may be threatened, as biotech can be weaponized.9
As some players seeking success in the biotech space may prioritise profit/progress over prudence, insurers must carefully analyse the related risks. This applies to both underwriting and asset management. Moreover, these technologies’ disruptive potential should not be underestimated. For example, advances that allow for early cancer treatment could reduce or eliminate the need for cancer drugs or related hospital services.
Further Information
References
1 Martin, D.K., et al., “A brief overview of global biotechnology,” Biotechnology & Biotechnological Equipment 35, 2021.
2 “The Bio Revolution: Innovations transforming economies, societies, and our lives,” McKinsey Global Institute Report, May 13 2020.
3 “Plant-based ingredients maker Motif FoodWorks raises $226 mln in funding,” Reuters, 16 June 202.
4 “Carbios Accelerates Its Industrial Development,” Business Wire, 19 January 2022.
5 “The Future of Biotech in an Artificially Intelligent World,” Genetic Engineering & Biotechnology News, 5 January 2022.
6 Abbott, A., “Quantum computers to explore precision oncology,” Nature Biotechnology 39 (1324-1325), 2021.
7 “Top 5 Global Startup Hubs: Biotechnology,” StartUs Insights Research; “The 20 European Biotech Companies to Watch in 2022,” Labiotech.eu, 5 January 2022.
8 This report discusses a number of risks: “The Bio Revolution,“ McKinsey Global Institute, 2020.
9 “Benefits & Risks of Biotechnology,” Future of Life Institute; “11 Biotechnology Pros and Cons,” Vittana.org, 17 November 2017.
