Biotechnology Sector
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Industry Overview
The US biotechnology industry includes about 1,000 companies, with combined annual revenue close to $50 billion. Large companies include Amgen, Monsanto, Genentech, Applera, Genzyme, and Biogen. Because many drugs are now developed using biotechnology, the biotechnology and pharmaceutical industries overlap considerably. The industry consists of a few very large companies and many very small ones, and is fragmented by type of product. Most companies have annual sales under $50 million.
Competitive Landscape
Demand for biotechnology products and services is driven primarily by the willingness of insurers to pay for new medical treatments. The profitability of individual companies depends on the discovery and effective marketing of new products. Because the market for potential products is so large, small biotechnology companies can co-exist successfully with large ones if they have expertise in a particular line of research.
Products, Operations & Technology
The most successful uses of biotechnology so far have been the production of therapeutic drugs (biologics); genetically modified (GM) plants; and medical diagnostic tools such as DNA testing.
The biotechnology industry is characterized by the manipulation of living cells and their components to make new products. Some companies make only research tools that are sold to other biotechnology companies. Because they rely on advanced scientific knowledge, biotechnology companies frequently evolve from research departments at universities. Genentech, the first biotechnology company, evolved from studies of bacterial cells at Stanford and the University of California. Most biotechnology companies use a particular line of research begun at a university, and are often run by scientists with an academic background.
Typically, the research at a biotechnology company involves developing a specific laboratory method (a "technology") to make a biological product and then applying the same technology to develop similar products. For example, Genentech first developed the technology of using modified bacterial cells to produce human insulin, then used the same method to produce other biological chemicals. Similarly, Abgenix developed a technology to produce a human antibody against cancers using altered mouse cells, then used the same method to produce antibodies with other functions. Research costs are usually high, equal to 20 to 25 percent of revenue at large companies and often much more at small companies that don't yet have a commercial product.
While some companies develop their own technology, many license technology from another company or a university that "owns" the technology (through patents), usually paying a royalty on subsequent product sales. Technology licensing arrangements are a common way for large companies to acquire new research avenues, and for small companies to get revenue without having to commercialize a product.
The actual manufacture of products is often by third-party contract manufacturers. Typically, a small company will use a contract manufacturer in the initial stages of producing a new product, and will build its own manufacturing facility if the product is financially successful. Manufacturing costs are usually smaller than research and sales costs.