Member Logon
About Us
Free Trial
Investment Guide
Wall Street Update
Media Appearances



Biotech and Pharmaceuticals

     Biotechnology stocks have soared and dropped a number of times over the past year. What does this sector do? How are they different from "pharmaceutical" or "drug" stocks? (Which are fully interchangeable terms).

    The simplest way to differentiate these companies is to view pharmaceutical companies such as Johnson & Johnson (JNJ) as being the distribution arm of the industry, and the biotechnology companies as the discovery arm. The pharmaceutical companies have the contacts and contracts with the doctors, pharmacies, hospitals, and clinics worldwide. The pharmaceutical companies license newly discovered drugs from biotech companies and then manufacture and distribute them. The pharmaceutical companies can shop around for the drugs and treatments they want to bring to market through their already existing distribution channel. These companies generally have solid earnings and tend to be less risky. Occasionally they will get stung with a disaster like the 1980's Tylenol fiasco, or have to remove an already FDA approved drug from the market place because of unforeseen side effects or patient's inability to use a drug in the prescribed manner. The biggest concerns of an established pharmaceutical company have to do with selecting the right product mix and watching the calendar to see when drug patents expire.

    Biotechnology companies are out on the cutting edge of technology. They are pursuing new lines of research, which can often take 10 years to confirm if they have a stellar breakthrough or an expensive dud. Terms such as monoclonal antibodies and human genome sequencing are the domain of the biotech companies. Only 1 in 10 projects in the biotech industry ever receives FDA approval and gets licensed to a pharmaceutical company. A single success can generate a spectacular revenue stream that can cause the stock to outperform the market for 10 to 15 years. Biogen has one success to its name. Amgen has only two products, yet the revenue from these successful products allows them to pursue numerous other projects. The goal of the biotech firms is to make a discovery and get it through the four stages of FDA testing. An investor who buys a stock based on results from the early stages of testing needs to view their purchase as extremely speculative. News releases often tout a testing success, but are often void of which stage of testing they are at. Preliminary lab rat successes are a far cry from successful large scale human tests. Once completing the four stages of testing the FDA convenes a panel that will either recommend or not recommend FDA approval. Then a new drug or treatment has to be licensed by a pharmaceutical company, manufactured, marketed, distributed and gain a following.


View our Past News Articles