The Booster for Biotechs

By Scott Roberts

The biotechnology industry has built up quite the reputation when it comes to volatility and returns. As the demand for prescription drugs grows larger, more and more biotech companies are entering the arena guns blazing. Some of these companies sky rocket to extreme growth, while others crash and burn all the way to zero. Thus the question arises, what gives a biotechnology company the competitive edge in a win-big-or-go-home industry? How does a company like Abbott triple in value, while other promising companies crash and burn? What is the secret to capitalizing on potential?

First and foremost, how a biotech company handles its clinical trials is critical. One failed clinical trial is enough to end a biotech startup, as “one failed trial can mean millions lost,”[1] not to mention the lost time invested. Even more common, one bad news story can cause a biotech titan to tank. In order to maintain credibility and investor optimism, companies must carefully manage both how they conduct their clinical trials, and how they report results to the media.

Even more of an asset is the exclusivity factor. In the U.S., “biologics receive marketing exclusivity protection for 12 years.”[2] This creates a huge financial incentive for biotechs, as they can profit with no competition (generic brand replication efforts) for 12 whole years. Thus, taking the path toward biologics medicine offers a great competitive advantage, given the medicine’s clinical trials are successful.

Even if a biotech company can successfully produce a successful product, they need to be able to adequately market and sell it. Many biotech products and medicines can be complicated. Companies need a commercial plan that presents the product to consumers in an understandable, informative, and persuasive manor. In particularly, biotechs need to avoid greedy, malevolent pricing in their marketing plan. For example, consider Turing

Pharmaceuticals run by Martin Shkreli. In 2015, “Shkreli and Turing Pharmaceuticals raised the price of their HIV treatment from $13.5 to $750,”[3] an increase of over 5400%. While it is important to price appropriately to make up for debt taken on in the clinical process, it is completely inappropriate to jack up prices by obscene amounts, taking advantage of the consumer base. This kind of abusive pricing is not a good marketing plan, as it only attracts negative consequences from consumers and regulators, discouraging future investments.

Lastly, biotechs need to continually innovate if they want to truly thrive. There are plenty of one-hit wonders in the industry, who rest on the laurels of their one product’s success. However, a biotech’s exclusivity doesn’t last forever, and eventually generic imitations will be marketed by rival companies. That’s when these one-hit wonders start to stall. Instead, biotechs need to be constantly reinvesting an appropriate amount of their earnings to pursue new medicines and products. This is how titans like Abbott, Pfizer, Bristol-Meyers Squibb have reigned on top for years, while simultaneously providing consumers with better medical options.

Climbing to the top of any industry isn’t easy, and the biotech industry has many unique dangers of its own. However, with the success of a trial, a solid marketing plan, the advantage of exclusivity, and the commitment to innovation, the sky is the limit. Granted, a little luck is always needed. Nevertheless, the industry could boost past others in the coming years, and it will be exciting to see which companies stall and which companies fly as we surge further into the future of biotechnology.

[1] Joshua Rodriguez, “Biotech Stocks”, Money Crashers, August 20, 2020, https://www.moneycrashers.com/biotech-stocks-invest/ [2] Keith Speights, “5 Reasons Biotechs Are Smart Investments”, The Motley Fool, July 24, 2016, https://www.fool.com/investing/2016/07/24/5-reasons-biotech-stocks-are-smart-investments.aspx [3] Kyle Woodley, “Pros and Cons of Buying Biotech Stocks”, Yahoo News, February 24, 2016, https://sg.news.yahoo.com/pros-cons-buying-biotech-stocks-151724367.html