Will Biotech Companies Replace the Big Pharma?

Are the Biotech companies the leading market players now? Will it take the place of Big Pharma?

Big players in the biotech industry are now behaving like the pharmaceutical giants. In the US, there are 17 biotech companies that generate over $500 million annual revenue per year. These companies are focusing more on buying innovative and new products through acquisition and mergers, rather than developing their own in house product.

This was reported in the recent 2016 Biotechnology Report released last Monday entitled Beyond Borders: Returning to Earth of Ernst and Young.  The analysts presented a new look of the biotechnology sector today.

Ellen Licking, Senior Analyst in Ernst and Young said that there are a number of big biotech companies that have the financial power to compete with the big players in the pharmaceutical industry.

Before, biotech is a term used in utilizing genetically engineered proteins to make drugs. On the other hand, the pharmaceutical companies, focused on medicinal chemistry wherein they make use of various compounds that may be of use in treating diseases. After several decades, these terms are now used interchangeably.

A lot of pharmaceutical companies are now developing drugs inside the living cells. Biotech has now become a common phrase for startup companies that are working on medical devices and other forms of drugs. But the Ernst and Young reported that these biotech companies are not really young and small companies.

In the past years, there has been a series of breakthrough drugs that has lead to some biotech companies to make it big in the stock market. Sovaldi, Gilead’s blockbuster Hepatitis C drug is now generating huge revenues. Some drugs have been in the market for three decades and they have reached their global target market.

Many biotech startups have already experienced stock fluctuations even before their product starts to earn revenue. This means that biotech startups with promising lead candidate drugs are attractive for buyout at a very competitive price.  Both the big pharmaceutical and biotech companies are at war in acquiring for a promising and startup biotech company.

It is interesting to note that the big biotech companies were down to 17 from 19 last 2014. These biotech companies were reported to collectively raise over $32 billion debt financing last 2015. These are mostly for merging and acquisition.

The biotech companies are also investing huge amount of money for research and development. Last year, the spending grew only for 10%. Now, the biotech companies spend over 28%. These numbers suggests that biotech companies are acting more like the big pharma. They are seeking on buying new ideas through merger and acquisition rather than innovating their own drugs.

For instance, Celgene, a biotech company had $8 billion debt to pay for $7.2 billion in buying out Receptos – a startup biotech company with a candidate immunotherapy drug that will be used as therapy for ulcerative colitis.  This condition is an autoimmune disease that targets the intestine.

The strategy of the two industries – big biotech and big pharma is to narrow down their focus.  Instead of developing new and innovative drugs to treat various conditions, these companies are trimming down their focus on a particular area. For example, Receptos was acquired by Celgene because it has product that fits their portfolio of medicines that targets inflammatory diseases.

AbbVie is a very good example of an industry player that goes between the biotechnology and pharmaceuticals.  Last April, AbbVie had a $10.2 billion deal to buy Stemcentrix, a startup biotech company that develops drugs to target cancer-causing stem cells.  At the same time, AbbVie develops and commercialize pharmaceutical drugs for various liver and neurologic diseases.

The Booming Biotech Industry

The Ernst and Young report showed that Biotech industry is healthy and booming. The environment for regulatory approval is in favor of these companies.  The Food and Drug Administration offers fast-track approval of breakthrough drugs that targets rare diseases. There are more rooms for improvement in the biotech companies as the science for drug development continues to move quickly.  The fields of cancer immunotherapy, gene editing and gene therapy offers more opportunities for drug development.

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