Biotechnology will remain a compelling option for investors as the sector is poised for long-term growth. This is driven by demographic trends as the number of people who need innovative therapies will grow over the next few decades. 
The demand for drugs is a result of two distinct demographic changes. In the developed world, people are living longer and older people make up an increasing proportion of the population. According to the US Census Bureau, the number of people aged over 65 will double from 7 to 14 per cent by 2040, and those aged 85 will double over the next 20 years. There is a higher incidence of more complex diseases, such as cancer and dementia, among this older population.
On the other hand, the populations in emerging markets are still growing. At the same time, these nations are becoming wealthier with a growing middle class, which will be able to afford more expensive health care.
The increase in the demand of drugs is being supplemented by a continued growth in supply. However, finding compounds which can treat complex diseases is far from straightforward. For many years, scientists struggle to find effective new therapies.
Despite the complexity, over the last two decades, there has been a rapid increase in the understanding of the underlying mechanisms of complex diseases, like cancer. Scientists today have a number of sophisticated tools to use in their fight against disease, such as rapid gene sequencing, better understanding of human proteins and ability to analyse data much more rapidly.
By using these tools and their increased understanding, biotechnology companies have developed a range of new methods to tackle cancer as well as a myriad of new drugs.
The treatment of lung cancer is a testament to the headway made by scientists. In 1996, there were four chemotherapy drugs approved to treat this disease. By 2016, 19 drugs had been approved spanning five therapeutic categories. These include immunotherapy, cyclin-dependant kinases and anaplastic lymphoma kinase.
The number of drug approvals is accelerating. There was a 32 per cent increase in compounds approved over the last five years when compared with the prior five years. And the number of drugs in development has doubled in the last 15 years.
Of course, not all these drugs will reach approval as the attrition rate for drug development is high. By the time a drug reaches the final phase of development it has a 70 per cent chance of being approved but it is as low as 10 per cent for those products in early clinical trials.
Assuming the attrition rates remain constant, there should be even more compounds making it to market over the next decade. The growing number of drugs gives doctors many more treatment options because these products can be used in combination.
The treatment of cancer will become even more complex over time as the understanding of the disease increases. As the genetic variation between different types of tumours increases, treatment will be increasingly fragmented. This will result in a more personalised approach to cancer therapy.
In addition, new drugs will prolong the life of patients, making it more likely they will receive other compounds as their disease progresses. In the future, cancer could become a chronic rather than an acute condition.
There is no doubt that the advancement in the treatment of cancer and the continued innovation in drugs should be encouraged. It is worth noting that investing in biotechnology companies still requires expertise to pick the right companies as it remains a high-risk sector.
Carl Harald Janson is lead investment manager of International Biotechnology Trust. The views expressed above are his own and should not be taken as investment advice.