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How Profitable is the Biotech Drug Development Sector?

December 16, 2010
Q: How many public biotechnology companies focused on pursuing drug development are profitable?

A: Less than 10%

Of 225 public biotech companies in the drug development business, only 17 are profitable (7.5%) based on 2009 Net Income. The profitable companies tend to be those with three or more products:

  • Only 1.3% have 1 product AND are profitable (3 of 225)

  • Only 0.9% have 2 products AND make a profit (2 of 225)

  • Only 5.3% have 3 products AND make a profit (12 of 225)

If we ignore profitability, and just look at how many drug developers have one, two, or three products on the market we find that there are actually 61 companies with approved products (27%). Here is the breakdown:

  • 19 have only 1 product (8.4% of 225)

  • 16 have 2 products (7.1%  of 225)

  • 26 have 3 or more (11.5% of 225)

Conclusion: Positive net income in biotech is a rare thing, even a couple of years after product approval. Perhaps the first obvious explanation are the long time lines and tremendous expenses incurred to bring a product through clinical trials. Another reason for the low number is that once companies do come up with a great drug, the larger drug companies circle the waters for an acquisition seeking to expand their product portfolios. Examples this year: OSI Pharmaceuticals (Astellas), Zymogenetics (BMS), and Abraxis (Celgene). In some cases, a biotech will have a product on the market but only for a relatively small market. In this case, most of the revenue is being funneled into ongoing clinical development and the profitability is postponed until a second product is launched. During this time however, the sales and marketing team is developing specialized skills in niche segments of the market, enabling a more effective launch for the later drugs and eventual profitability.

Method: Of the 297 public biotechnology companies I list as “active” (filing with the SEC, not in bankruptcy, etc.), 225 aim to develop or sell drugs (75%). The other 72 are developing diagnostics, tools, biofuels, etc, and are not included in this analysis. For the initial screen for “approved or marketed” drugs per company, I used the Medtrack database. This was followed up with company website data.