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Profitless profitability- the case of biotechnology?
Phenomenon
The over 4000 dedicated biotechnology companies that were estimated to exist worldwide in 2005 produced a collective revenue of but 63 billion US$, increasing steadily since 10 years. However there is a collective a loss 4.3 billion US$ in 2005. Despite the steady negative net earnings the biotechnology industry is blooming. The industry continues to attract capital and partners for their collaborative drug development and commercialization projects. In 2005 we saw 500+ new agreements, and the industry managed to raise X billion US$ in 2005. There was an increase of 10+% corresponding to the formation of severla hundres new companies. Tounsands of new patents were issued and approximately 50 new biopharmaceutical drug were approved by the FDA. Further, the current medical product development path is becoming increasingly efficient. The average time of a time to market in 2006 was 8,4 years costing 600 million US$ in average versus 14, years and 800 million US$ in 1996, sowing an increase of efficiency in drug discovery. The biopharmaceutical business seems to be pretty healthy.
Research Question
Given the efficiency of the financial markets the investors are waiting for the return on the biotechnology investment in long-term. One should ask why are the firms showing negative earnings while the revenues have been increasing exponentially, or more shortly where does the money go? Is the competitive landscape pushing the firms to reinvest heavily in the R&D in the wish for sustainable competitive advantage? In the drug discovery business, is the demand for new products in the pipelines within the industry bigger than the pharmaceutical and biotechnology firms can supply?