Biotechnology: Macroeconomic Financial Drivers for Expansion

Allan M. Green, MD,PhD,JD

The reasons for burgeoning interest in biotechnology are clear. Aging of the population and increase in the cost of health care has brought increased demand for new and improved healthcare treatments which can improve the quality of life, deal with specific illnesses and reduce the costs of health maintenance.

Moreover, investment in the first 20 years of the biotechnology sector has yielded strong results. There are now over 350 biotechnology drug products and vaccines in clinical trials and over 115 biotechnology drug products have now been approved and are on the market. Revenues for the industry have soared, rising from $8 Billion in 1993 to $22.3 Billion in 2000. Moreover, the industry now employs 150,000 people.

This success comes from the remarkable upsurge in funding for biotechnology companies in recent years. There are over 1000 private biotechnology companies in the United States. In addition, there are over 300 publicly traded biotechnology companies today. In the year 2000 alone, 68 biotechnology companies successfully completed their Initial Public Offerings. . Between 1999 and 2000 the market capitalization of the U.S. Biotechnology Industry increased 156 percent, rising from $137.9 Billion to $353.5 Billion.

What is unique about the biotechnology sector, is that almost every one of these companies started within the last 20 years as a small research group focused on a technology platform or a product concept. The majority of these companies were started by risk venture capital which allowed entrepreneurial inventors to pursue proof-of-principal experiments with their early stage ideas. Although venture capital investing in technology companies has suffered in the last year, the biotechnology sector has proven more resilient. Venture capital investment in biotechnology increased from $1.1 billion in the second quarter of 2000 to $1.5 billion in the second quarter of 2001, according to the National Venture Capital Association.

And when biotechnology companies succeed, their value is remarkable. A mere 12 years after the founding of Amgen, the Company had a market capitalization of $8 billion and product sales of $1.2 billion. Is this unusual? At the end of 2000, over 50 publicly traded biotechnology companies had a market capitalization in excess of one billion dollars.

Thus, the biotechnology sector can provide markedly above average rates of return for investors with a tolerance for risk, an interest in the frontiers of science, and the willingness to support invention at its earliest and most creative.