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Cost Benefit Analysis of Research and Development of Top 10 Biotechnology Companies
Frost & Sullivan, June 2005
Biotechnology Products in Late Stages of Development Promise Market Growth
The top ten biotechnology companies in the United States have 186 products in research and development (R&D) and of these, nearly 20 percent are in phase III of development. These products are likely to have substantial impact on market growth in the next two to three years. The biotechnology industry is optimistic about market growth despite the recent spate of drug recalls in the pharmaceutical and biotechnology industries, which wiped out billion’s of dollars of market capital. Since the fundamentals of product development are sound, the companies are confident of overcoming these setbacks and accelerating growth.
This Frost & Sullivan research service examines the risk-return and cost-benefit profiles of research and development of the top ten biotechnology companies in the United States. The study incorporates a model to evaluate and provide an outlook for each of these companies. It also analyzes the possible blockbuster products in the product pipelines.
High Returns from Biotechnology Stocks Continue to Drive Investor Interest
The biotechnology market thrives on risk taking. From 1994 to 2005, the top ten companies have returned an exceptional figure of close to 27 percent on stock price appreciation. In the next year, this number is expected to reach 24-25 percent, despite a few setbacks in the industry. Established companies such as Amgen, Chiron, Genentech, and Genzyme are forecast to continue leading the market. Such high levels of returns from biotechnology stocks are likely to sustain investor interest in the industry and maintain focus on new R&D projects. Biogen IDEC, which has delivered the highest returns of 43.5 percent from 1994 to 2005, has a risk rating of ‘moderate/high’, says the analyst of this research. Similarly, Gilead which has returned 29.5 percent, much above the industry average, has the highest risk rating of “very risky”.
Licensing Deals and Risk Management Reduces the Perils Associated with Failure
As a drug moves through more advanced stages of R&D, the losses associated with failure are naturally expected to increase. To counter this situation, biotech companies could enter into licensing deals and implement risk management solutions. Industry trends point toward an increase in licensing and partnerships between companies. By sharing the risks and profits, companies can eliminate or decrease the jeopardy associated with failures. The partnerships between big pharma and biotech are likely to be the trendsetters in the biotech industry, notes the analyst. With the technical expertise of biotechnology and the marketing skill of big pharmas, the collaborations are expected to be very successful.
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