Biotechnology

Definition:  Biotechnology drugs are defined as those produced through recombinant DNA technology from substances naturally occurring in living organisms. Today, there are over 155 biotech products on the market, 70% of which were approved in the last six years alone. Several biotech products have also reached blockbuster status – 11 out of the 76 blockbuster drugs were biologicals in 2004.

The competitive landscape in the biotechnology sector is comprised of a diverse, evolving universe of players occupying specific niches according to their stage of development. The vast majority of biotechnology companies follow a typical evolution of business model, starting at the low-value end of this pathway, as technology developers or as service providers, and aiming to eventually become fully integrated companies developing and marketing their own products. The latter sections of this report discuss specific challenges and growth strategies dependent on a company’s level of development.

The biotechnology market consists of the development, manufacturing and marketing of products based on advanced biotechnology research. The market value reflects revenues of companies within this industry from product sales, licensing fees, royalties and research funding.

The biotech sector fuses two domains, creating a science-business model that nanotechnology, advanced materials, and other industries have adopted. For-profit enterprises now often carry out basic scientific research themselves, and universities have become active participants in the business of science. They patent their discoveries; their technology-transfer offices actively seek commercial partners to license the patents; and they partner with venture capitalists in spawning firms to commercialize the science emanating from academic laboratories.

Stock Market Performance

Since Genentech (NYSE: DNA) went public back in 1980 the biotech sector has been marked by periodic boom-and-bust cycles in the stock market. The reason for the volatility of the sector is due to the nature of the field, which holds great promise and yet requires enormous risk-taking. Thus investors are lured by potentially enormous gains, but then pull back when the majority of stocks do not deliver.  These boom-and-bust cycles may never end, but they could be moderating, primarily because biotechnology is maturing.

Growth Forecast

In 2009, the Biotechnology market is forecast to have a value of $102.2 billion, an increase of 68.9% since 2004.  The calculated annual growth rate of 11% for the five-year period 2004-2009 is expected to drive the market to a value of $102.2 billion by the end of 2009. This will allow the US market to remain as the world's largest in 2009.  The US accounts for 53% of the global biotechnology market's value. 

Burrill and Company, an industry investment bank, estimates that $350 billion has been invested in biotech, nearly half of that in the past five years. Global revenues have risen from $23 billion in 2000 to more than $50 billion last year.   Burrill, the investment bank, estimates that the Biotechnology Industry will attract some $35 billion in fresh investment in 2006. About $10 billion will come from biotech joining with big drugs firms and other integrated firms in alliances. The rest Burrill estimates will come from the public equity markets.

In their first 100 hours in the next Congress, Democrats have pledged to let Medicare start negotiating lower prices from drug companies, something now prohibited. This would save money for Medicare patients and taxpayers by pinching profits at drug companies, including major biotech firms. Biotechnology leaders also worry that as Medicare pushes prices down, investors will lose enthusiasm for risky biotech start-ups, whose growth depends on the chance they may profit from future drugs.

In a speech last week, Biogen Idec chief executive James Mullen said that if the government squeezes drug prices, Wall Street could sour on biotech, with "dramatic, detrimental, and irreversible effects."

The newly powerful state delegation would give the industry a louder voice in Washington, and some hope it will increase National Institutes of Health research funding. But it will also give new impetus to the push for lower-priced generic versions of biotechnology drugs.