Biotechnology Sector
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Industry Overview
The US biotechnology industry includes about 1,500 companies with combined annual revenue of about $70 billion. Major companies include Amgen, Biogen Idec, Genentech (owned by Switzerland-based Roche), Genzyme, Life Technologies, and Monsanto. Because many drugs are now developed using biotechnology, the biotechnology and pharmaceutical industries overlap considerably.
Competitive Landscape
Demand for biotechnology research in the fields of medicine, agriculture, food, and science is driven by insurers' willingness to pay for new medical treatments, the global need to produce more food for a rapidly expanding population, and scientists' desire to find solutions for complex scientific and medical issues. Funding for biotech research is often provided by venture capital funds hoping to cash in on new products. 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. The industry is capital intensive: average annual revenue per worker is more than $350,000.
Biotech firms face stiff competition from pharmaceutical and other companies seeking to be first with a new product or discovery.
Products, Operations & Technology
Biotechnology is used to produce drugs, therapies, vaccines, and medical diagnostic tests. It's also used to produce genetically modified (GM) plants and crops; DNA fingerprinting; environmental biotech products that aid in the clean-up of hazardous waste; and industrial biotech applications that help numerous sectors produce less waste and use less energy and water.
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 academic backgrounds.
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 (acquired by Amgen in 2006) 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. US publicly traded biotech companies spent nearly $30 billion on research and development in a recent year.
While some companies develop their own technology, many license technology from another company or 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.
