The evolution of the biotechnology industry

Biotechnology is defined as the application of biological systems or processes to develop products beneficial for humans. The biotechnological industry surged at the beginning of the 1970s as a result of the movement of highly qualified researchers from the academic field to the corporate world. The industry is international and depends mostly on networks involving universities and financial companies. Universities are responsible for carrying out field research and creating knowledge that can then be used for the development of new technologies by biotechnological companies. Meanwhile, hedge funds, private investors or any other financial organisation provide them with the capital necessary to operate. The companies usually combine research, manufacturing and distribution. However, a new type of company has appeared– the dedicated biotechnological firm (DBF) – which acts as a bridge between researchers and the ‘economic part’ (investors. Retailers, etc.) That is to say, DBF focuses on manufacturing. 

The strategies that current biotechnological companies apply are manifold in such a competitive industry. Johnson & Johnson (who you might have heard of from their COVID-19 vaccine) is a titan in the biotechnological industry, with revenue of slightly over $91bn in 2021. This corporation follows a decentralised model, giving great autonomy to the different branches they have distributed across the globe. This allows them to take fast decisions and tailor their products to the local population. Also, Johnson & Johnson offers a wide variety of products from daily-use shampoos to innovative cancer therapies. However, the diversification of both products and authority can devolve into a lack of recognition for, and specialization within, the company. On the other hand, we have the Chinese company Shanghai Pharmaceuticals, which earned over $25bn in 2021. Shanghai Pharmaceuticals is the second biggest pharmaceutical company and the number one distributor of imported drugs in China. In contrast to Johnson & Johnson, Shanghai Pharmaceuticals follow a centralised and vertically-integrated model. This is seen as more traditional, which is not necessarily bad. A clear and solid hierarchy may help create better specialisation and organisation, as everyone knows their position in the company. This has allowed Shanghai Pharmaceuticals to take over a great portion of the Chinese pharmaceutical industry. However, there are also issues with lack of autonomy and alienation, deterring innovation and discouraging game-changing people from joining the company. Also, a key difference between Shanghai Pharmaceuticals and Western biotechnological companies is that the former also sells Traditional Chinese Medicine (TCM). This approach allows them to forge a strong identity among the Chinese population and distinguishes them from Western companies in the Chinese pharmaceutical industry.  

These two companies were founded before the 21st century, but many biotechnological companies have emerged recently. Many are established with the guidance of venture capitalists companies that provide them with resources and guidance. One of the most outstanding examples of this is Moderna, founded in 2010 under the hand of Flagship Pioneering. The objective of Moderna from the very beginning was to develop innovative drugs using messenger RNA, which is a molecule essential to synthesis of proteins in the cell. This focus on just one area of research allowed them to out-perform their generic competitors and forge a reputation.

However, it also narrowed their consumer range, and this was reflected in their numbers. In 2018 and 2019, Moderna was billing $113 and $60 million, respectively. Then, with the boost of the COVID-19 vaccine, its revenues rose dramatically to $803 million in 2020. Moderna is an exception to the many cases of relatively new biotechnological companies that started, exploded and then plummeted in a short time. We are living in an era when the biotechnological industry is more volatile than ever before, because the research is rapid, adding new areas of investments but also eliminating others. Some companies do not have the capital or infrastructure necessary to adapt to these changes and fail. The volatility of the biotechnological industry is the perfect playground for experienced speculative investors, but not for beginners. Even if the novice investor wants to be involved in the biotechnological industry, they should focus on well-established brands like Johnson & Johnson instead of predicting the next ‘unicorn’. 

There are two main tendencies currently in the biotechnological industry. First, traditional drug development targets medicines that are more effective for the majority of the population. This will change in the future due to the improvement of genetic sequencing and engineering drugs. Biotech companies will start focusing on providing drugs tailored to the genome of the individual, increasing exponentially the effectiveness of the treatments. However, this will also mean the halt of mass drug production and a radical change in research methodology. Also, it will be a must for biotechnological companies to accept and finish orders quickly, so decentralised models will probably be more suitable. Secondly, the world is facing a global food scarcity problem because of the strengthening of crop pests and the depletion of the international reserves of phosphorus, essential to make fertilisers. Therefore, we have to create more resistant and efficient crops to satisfy the demand of a growing population. Biotechnological companies know this and they are investing more and more resources in genetically modified crops and other solutions. Thus, the farming industry will be more related to, and dependant on, biotechnology, whose volatility might be spread to the farming industry too. These are not more than suppositions though.