At first glance, biotech stocks might not seem like logical additions to an impact-investment portfolio. However, a growing number of investors apparently think biotech does have an important place in the world of impact investing.
In fact, Alastair Graham, who tracks single-family offices through his database, Highworth Research, went so far as to declare, "Biotech is the ultimate impact investment." Of course, determining if biotech is indeed the ultimate investment begins with understanding what impact investing is.
What is impact investing and what role could biotech play in it?
Impact investing involves choosing investments with the goal of generating positive, measurable social or environmental impacts while also recording a meaningful financial return. Impact investors are focused on funding some of the most critical and pressing challenges facing our world today.
Of course, businesses that fall into areas like green energy, sustainable agriculture, conservation and microfinance seem like obvious plays, as does any other business that provides easy and affordable access to basic services like housing, education and healthcare.
However, those industries aren't the only way to support positive social outcomes. A closer look at some companies in the biotech sector reveals a wide variety of other ways to drive positive societal changes.
For example, impact investments can be personal in some cases, meaning they support places where the investor has personally felt that some sort of need has been lacking. Some examples that could apply to biotech companies include trying to uncover effective therapies for devastating, hard-to-treat illnesses or refining processes to improve agricultural production with the goal of reducing hunger.
Biotechnology involves using living cells to manipulate or develop products with specific purposes, so the potential use cases of such technology are virtually endless.
Changing how we think about our investments
Considering biotech or any other industry as a potential impact requires investors to change how they think about their investments, something many investors have been doing over the last several years. Specifically for biotech, high-net-worth individuals are increasingly approaching the sector with a mindset of impact investing.
Citing data from Graham and his Highworth Research, the Financial Times reported earlier this year that about one-fifth of single-family offices have invested in biotech or healthcare in the past two or three years. Additionally, a survey of members of Tiger 21, a network of wealthy people who share advice on investments and philanthropy with each other, found that almost 25% were planning to invest in healthcare in 2023.
The Financial Times also reported that family offices are getting very serious about investing in biotech, hiring medical doctors or researchers with a Ph.D. in biochemistry or microbiology to oversee their investments. In the past, many family offices just invested in companies working on treatments for diseases that affected a family member or other loved one due to a personal connection — without necessarily understanding how those potential treatments might work.
Hiring experts in biotech to oversee investment selections suggests family offices that have entrenched themselves in the sector are there to stay. It certainly makes sense because family offices tend to have ultra-long-term and often multi-generational investment horizons.
Thus, when family offices are paying particularly close attention to a sector, it could make sense for other investors to listen up as well.
Connecting for impact
Of course, investors are only one side of the impact equation. While publicly traded companies are always seeking and wanting to attract investors in general, appealing specifically to impact investors requires a bit of extra work, especially for companies in less-obvious impact sectors like biotech.
As such, not every biotech company includes social impact as a part of its investor relations (IR) strategy. In some cases, it might not make sense to do so, while in others, not every company desires to target an impact narrative for their story and stock.
However, companies that do find the impact angle appealing for their business could gain access to billions of dollars in additional available investor capital. Impact investing certainly isn't a strategy that will be going away anytime soon.
In its 2023 GIINsights report, the Global Impact Investing Network (GIIN) found that investor allocations to impact strategies have increased, with 45% of U.S. and Canadian investors allocating $198 billion in assets under management to impact strategies in their region alone.
As far as biotech specifically is concerned, 51% of impact investors are investing in healthcare, which includes biotech, and 9% of the assets under management in impact strategies have been allocated to healthcare.
Spotting impact investment strategies that make sense
For companies that do desire to pursue an impact-related IR strategy — and for investors who want help identifying stocks that would make great impact investments — similar advice can be considered.
Generally, IR strategies include the company's mission, its long-term vision, and the goals that will serve as mile markers along the path to achieving that vision. Companies targeting an impact narrative should make that side of their story crystal clear for investors. For biotech companies, it may require some extra storytelling or explanation of what the impact thesis represents for their company.
Fate Therapeutics (FATE) has included a corporate responsibility section on its website outlining the many positive social impacts it seeks, something not every biotech company shares.
More subtly, Kura Oncology (KURA) is developing precision medicines that can treat cancer with minimal damage to healthy cells. Its commitment to creating treatments that not only prevent cancer recurrence but also benefit more than just the small percentage of cancer patients who have been able to receive such therapies in the past is very impact-oriented.
Investing in biotech stocks with an impact focus
With all the trends discussed above, it's easy to see why impact allocations are rising. In fact, according to GIIN, almost all impact investors have met or exceeded their expectations for financial and impact performance, which further supports the trend of rising impact investments.
Thus, for investors and impact-oriented companies alike, significant benefits from impact investing can be enjoyed on both sides. Of course, investors are always advised to do their due diligence before investing in any company or sector.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Ari Zoldan
Ari Zoldan is the CEO of New York-based Quantum Media Group, LLC. The company provides investor relations, public relations and equity research services to publicly traded companies. As an on-air media personality, Ari can be seen regularly on major media outlets and is frequently quoted in mainstream news outlets covering business, innovation and emerging trends.
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