Biotechnology is a science-driven industry sector that uses living organisms and molecular biology to produce healthcare-related products. Biotechnology companies also develop therapeutics or processes (such as DNA fingerprinting). Biotechnology is best known for its role in medicine and pharmaceuticals, but the science is also applied in other areas such as genomics, food production, and the production of biofuels.
KEY TAKEAWAYS
Biotechnology is the branch of applied science that uses living organisms and their derivatives to produce products and processes.
These products and processes feature in healthcare, medicine, biofuels, and environmental safety.
Biotech stocks are risky investments since biotech firms often spend massive amounts of time and money developing drugs that might never get to the market.
The top U.S.-based biotechnology firms in terms of market capitalization are Johnson & Johnson, Roche ($304.60 billion), Pfizer ($218.11), and Novartis ($201.21).
A valuation of a biotech firm should consider the size and development stage of the asset pipeline.
Understanding Biotechnology
Biotechnology involves understanding how living organisms function at the molecular level, so it combines a number of disciplines including biology, physics, chemistry, mathematics, science, and technology.
Modern biotechnology continues to make significant contributions to extending the human lifespan and improving quality of life, including providing products and therapies to combat diseases, generating higher crop yields, and using biofuels to reduce greenhouse gas emissions. Hungarian engineer Karl Ereky reportedly coined the term “biotechnology,” which is often referred to as “biotech,” in 1919.
Companies in the biotech space tend to face significant barriers to success. One critical reason for this is that research and development costs for biotechs tend to be incredibly high. While a company is focusing its time and money in these areas, there's usually little revenue. It's not uncommon, therefore, for biotech companies to work together with larger, more established firms to achieve their research and development goals.
Biotech vs. Pharmaceutical Companies
Biotechnology and pharmaceutical companies both produce medicines. However, the medicines made by biotechnology companies are derived from living organisms while those made by pharmaceutical companies generally have a chemical basis.
The term biopharma describes companies that use both biotechnology and chemicals in their research and development. Common products of biopharmas are anything made of plastic, laundry detergent, vaccines, beer, and wine. Common products of pharmaceutical companies are drugs and vitamins.
Biotechnology firms use the processes of living organisms to solve problems with new products. The use of DNA has helped to create pest-resistant crops, biofuels like ethanol, and gene cloning.
On the pharma front, the Cleveland Clinic recognized the top 10 medical advances for 2021. These included a new class of drugs for migraines called calcitonin gene-related peptide (CGRP) and PARP inhibitors for the treatment of prostate cancer. Also, a new treatment for postpartum hemorrhage, the vacuum-induced uterine tamponade, will greatly help women in developing countries who have limited access to other treatment options.1
Top biotech companies include Exelixis, Novavax, and Regeneron Pharmaceuticals. Top pharmas include Johnson & Johnson, Pfizer, and Roche.
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