What Is Biotechnology?
Biotechnology is a science-driven industry sector that uses living creatures and molecular science to produce healthcare-related products. Biotechnology companies likewise develop therapeutics or processes, (for example, DNA fingerprinting). Biotechnology is best known for its role in medicine and pharmaceuticals, yet the science is additionally applied in other areas like genomics, food production, and the production of biofuels.
Biotechnology involves understanding how living life forms function at the molecular level, so it combines a number of disciplines including science, physics, chemistry, mathematics, science, and technology.
Modern biotechnology continues to make huge contributions to extending the human lifespan and improving quality of life, including providing products and therapies to combat diseases, generating higher crop yields, and utilizing 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 critical 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 centering its time and money in these areas, there's generally little revenue. It's normal, therefore, for biotech companies to cooperate with larger, more established firms to achieve their research and development objectives.
Biotech versus Pharmaceutical Companies
Biotechnology and pharmaceutical companies both produce medicines. However, the medicines made by biotechnology companies are derived from living creatures 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, clothing detergent, vaccines, beer, and wine. Common products of pharmaceutical companies are medications and nutrients.
Biotechnology firms use the processes of living organic entities 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 medications for migraines called calcitonin gene-related peptide (CGRP) and PARP inhibitors for the treatment of prostate cancer. Likewise, 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.
Top biotech companies include Exelixis, Novavax, and Regeneron Pharmaceuticals. Top pharmas include Johnson and Johnson, Pfizer, and Roche.
A History of Biotechnology
Biotechnology in its essential form has existed for millennia, dating back to an era when humans previously learned to produce bread, beer, and wine utilizing the natural process of fermentation. For a really long time, the principles of biotechnology were restricted to agriculture, like harvesting better crops and improving yields by utilizing the best seeds and breeding livestock.
The field of biotechnology began to develop rapidly from the 19th century with the discovery of microorganisms, Gregor Mendel's study of genetics and groundbreaking work on fermentation and microbial processes by goliaths in the field like Pasteur and Lister. Early twentieth century biotechnology led to the major discovery of penicillin by Alexander Fleming, which went into large-scale production during the 1940s.
Biotechnology took off during the 1950s, spurred by a better understanding in the post-war period of cell function and molecular science. Every decade since then produced major breakthroughs in biotechnology. Some of the highlights are the accompanying:
- The discovery of the 3D structure of DNA during the 1950s
- Insulin synthesis and the development of vaccines for measles, mumps, and rubella during the 1960s
- Massive strides in DNA research during the 1970s
- The development of the main biotech-derived medications and vaccines to treat diseases, for example, cancer and hepatitis B during the 1980s
- The identification of numerous genes and the presentation of new treatments in decades for dealing with multiple sclerosis and cystic fibrosis during the 1990s
- The completion of the human genome sequence during the 1990s, which made it possible for scientists worldwide to research new treatments for diseases with genetic beginnings like cancer, heart disease, and Alzheimer's
The biotechnology sector has developed by leaps and limits since the 1990s. The industry has spawned goliath companies in the medical space like Gilead Sciences, Amgen, Biogen Idec, and Celgene. At the other extreme are large number of small, dynamic biotech companies, a considerable lot of which are engaged in different areas of the medical industry, like medication development, genomics, or proteomics while others are involved in areas like bioremediation, biofuels, and food products.
There additionally have been big product presentations in biopharma drugs. Some of the most often used biotechnology medical products recently introduced include the accompanying:
- AbbVie's Humira, which is used to treat joint pain, psoriasis, and Crohn's disease.
- Roche's Rituxan, which is used to sluggish the growth of growths in several types of cancer.
- Amgen/Pfizer's Enbrel, which is used to treat several autoimmune diseases.
The top U.S.- based biotechnology firms in terms of market capitalization as of October 2021 were Johnson and Johnson ($425 billion), Roche ($334 billion), Pfizer ($240), and Novo Nordisk ($225).
During the COVID-19 pandemic, biotech companies raced to develop vaccines to fight the coronavirus. Biotech companies like Moderna and BioNTech rapidly researched, developed, produced, and administered COVID vaccines.
Investing in Biotech Companies
Biotech and pharmaceuticals are very different propositions for investors. Biotechnology companies typically have high operating costs because their extensive research, development, and testing takes years to complete. New products can hit regulatory road obstructions; for example, some countries ban the use of genetically modified plants, and acquiring approval from the U.S. Food and Drug Administration (FDA) can be a lengthy and expensive proposition. In short, it is risky to invest in biotech.
As per The Motley Fool, some of the best biotech stocks are Axsome Therapeutics, Exelixis, Novavax, Regeneron Pharmaceuticals, and Vertex Pharmaceuticals.
Investors don't have to buy individual company stock to invest in biotechnology, however. One of the easiest ways is to invest in a biotech exchange-traded fund (ETF). These funds have holdings in numerous biotech companies, offering investors a well-diversified portfolio in a single trade.
Ten biotech ETFs trade in the United States. As of June 2021, the best-performing biotech ETF, based on performance over the past year, was the ARK Genomic Revolution ETF followed by Principal Healthcare Innovators Index ETF, and Global X Genomics and Biotechnology ETF.
The most effective method to Value Biotech Companies
It's difficult to value biotech companies because small companies can show no earnings yet have a pipeline of groundbreaking medications in progress. In 2017, the biotech monster Gilead bought Kite Pharma for $12 billion. Kite was showing critical losses and had a deficit over $12 billion. For what reason did Gilead buy Kite? Kite was working on a pipeline of CAR-T cell therapies, which treat cancer. As per Raphael Rottgen, CFA FRM, of Toptal.com, what this shows is that a company's pipeline often determines its value.
Numerous biotech firms don't show revenues because they invest such a huge amount in R&D, and new medications or products take a long time to reach the market, on the off chance that they ever do. As per Rottgen, a new medication typically takes eight years to reach the market post regulatory approval, and total development time for a new medication is ten to fifteen years. Whenever, a medication can fail in clinical trials, so the risk profile of a biotech firm is quite different compared to companies in other industries.
Measures for Biotech Company Valuation
Cash flows prior to the approval of a medication are often essentially negative. Therefore, typical valuation measurements like earnings before interest, taxes, depreciation, and amortization (EBITDA) or the price-to-earnings ratio (P/E) may not reflect the true value of a company that has breakthrough products ready to go.
As indicated by Rottgen, two other measures that can be used are EV/invested R&D, which is essentially an expense based valuation, and comparative value. Comparative value uses public market comparables or comparable M&A transactions.
The added risk associated with biotech investments must be considered in any value analysis. This calls for a discounted cash flow (DCF) utilizing an appropriate discount rate. Rottgen recommends utilizing risk-adjusted NPV and including projected cash flows and the likelihood of certain outcomes for different product scenarios.
Fundamentally, any valuation ought to consider the size of the asset pipeline, the development stage of the pipeline (e.g., Phase 1, NDA filing), and the company's development stage (e.g., pre-revenue).
The Bottom Line
Both pharmaceutical and biotech companies face an exorbitant process that, when successful, can produce extremely profitable products. However, the process is extremely unpredictable, which for a small biotech firm can prove very detrimental and unrecoverable.
Pharmaceutical companies, due to their larger size and diversified revenue base, are typically able to endure setbacks and failures. Competition is more relevant and exorbitant for biotech companies, creating a need for strong pipelines and non-natural revenues, (for example, through M&A or alliances). Consideration of these factors ought to be the basis for prudent investment in the biotechnology field.
- A valuation of a biotech firm ought to consider the size and development stage of the asset pipeline.
- The top U.S.- based biotechnology firms in terms of market capitalization are Johnson and Johnson ($457.2 billion), Roche ($346.3 billion), Pfizer ($262.2 billion), and Novartis ($205 billion) — as of Sept. 1, 2021.
- These products and processes feature in healthcare, medicine, biofuels, and environmental safety.
- Biotechnology is the branch of applied science that uses living creatures and their derivatives to produce products and processes.
- Biotech stocks are risky investments since biotech firms often spend massive measures of time and money developing medications that may very well never get to the market.
How Can You Manage a Biotech Degree?
Biotech professionals typically perform research on advanced therapies; for example, stem cells, gene therapy, or biopharmaceuticals. The vast majority in the biotech profession have a graduate-level degree. Professionals with an undergraduate degree in the biotechnology field typically have entry-level roles in a research lab.Biotechnology is a wide-reaching field. While pharmaceuticals and medication development are common paths, biotechnologists additionally work for government agencies, clinical labs, manufacturing, software engineering, R&D, and business management. Careers in biotechnology include biomedical engineers, biochemists, medical scientists, microbiologists, process development scientists, biomanufacturing specialists, business development managers, and directors of product strategy.
The amount Can You Make Working in Biotech?
Biotech professionals can work in startups, large established companies, medical labs, or research institutions inside the government. As per the Bureau of Labor Statistics, wage and job growth in this sector consistently outpace the national average. Salaries will change greatly because it is a particularly diverse industry, and your salary will depend on your education, experience, where you work, and the area that you choose. Here's a once-over of average salaries starting around 2020, as indicated by the Bureau of Labor Statistics:- Entry-level biotechnician: $46,340-Microbiologist: $84,400-Agriculture and food scientist: $68,830-Molecular researcher $94,270-Biomedical Engineer: $92,620 - Quality Control Systems Manager: $108,790-Natural Sciences Managers: $137,940-Marketing or Business Development Manager: $141,490
How Do You Start a Biotech Company?
Starting a biotech company takes huge funding. A founder must have a commercially viable product. The founder ought to consider the size of the market and the competition. For example, does the product differ from existing therapies? The startup will likewise need patent protection, and the founder ought to consider how long the protection will last.The founder ought to determine the time, resources, and strategy required to develop the product. How might expensive mistakes be avoided? These aspects ought to be analyzed to determine how much funding will be required, for how long, and who will provide the funding? A comprehensive business plan would need to be developed for investors, and ought to include plans for fundraising.
How Do I Get a Job in Biotech?
There are a number of entry-level positions that someone with a bachelor's degree can find. For example, working in a research lab. However, to advance, you will need a graduate degree and relevant experience in a specified field.Because the field of biotech is so large, you ought to think about which field of study you need to pursue, whether it be gene splicing or cloning. The direction that you need to head down will dictate which master's or Ph.D. you select.Other interesting points are your math and statistics skills. Biotechnology relies heavily on these skills combined with the use of software, for example, Excel, Minitab, JMP, and Design Expert. Lastly, a high-paying job in the pharmaceutical industry will require that you have experience with advanced lab functions and bioreactors. For advanced work in the pharmaceutical industry, try to combine an educational foundation and direct work experience.