Pharmaceuticals Benefit from Advances in Biotechnology

One of the sectors that benefits most strongly from advances in biotechnology is the pharmaceutical industry. The drug industry benefits with a larger cash flow once an FDA approval has been received for new advances in biotechnology. To understand how biotechnology affects pharmaceuticals, it's helpful to understand what biotechnology is.

Biotechnology assists in developing useful products; for example, new drugs to help fight a disease or medical concern. It does this by using living organisms as well as biological systems to enhance their effects.

Biotechnology is a cost burden to the drug companies. A majority of the pharmaceutical manufacturing firms invest cash flow into their research and development departments along with paying large dividends to investors. Similar to pharmaceutical firms, biotechnology firms also devote most of their income resources to research and development. In simple terms, with the advances in biotechnology, pharmaceutical companies and biotechnology firms both benefit financially. This means more funding for research and development, which not only increases the productivity but also decreases the wait time that the investors experience in receiving their dividends.

Pharmaceutical firms benefit from advances in biotechnology with large financial rewards if the risks are weighted properly and they take the correct steps. One of the most important factors to consider is whether the FDA is likely to approve a firm's new drug. When biotechnology increases its developments, the FDA's rate of approval increases as well. Biotechnology firms are able to identify more accurately what the FDA does and does not accept.

As recently as 2009, the world was seeing a rising trend in investing in biotechnology equipment by both academic institutions and government. Investment has been on the rise over the past several years. For example, in 2015, the pharmaceutical firm Merck announced its plans to spend $450 million over the next five years in conjunction with NGM Biopharmaceuticals to develop biotech drugs to address several common chronic conditions.

Another factor to consider is that biotechnology firms are able to form and grow fairly quickly once they have received approval from the FDA for a new drug. In 2013, a leading company, Gilead Pharmaceuticals, introduced a drug that became one of the most successfully launched pharmaceutical products in history. One of the contributing factors to the company's rise was the advancement in biotechnology that enabled it to develop the drug quickly and properly.

In conclusion, although pharmaceutical companies have tended to pay smaller dividends to investors than in previous years, there is a noticeable rising trend in the benefits of investing in biotechnology. As biotechnology advances increase, so do investors' profits.

  1. What is the difference between a biotechnology company and a pharmaceutical company?

    Make better investment choices by discovering the difference between biotechnology and pharmaceutical companies, including ... Read Answer >>
  2. Why would a growth investor purchase shares of companies in the drug sector?

    Learn why growth investors looking to beat the market gravitate toward the drugs sector, particularly the newer, high-tech ... Read Answer >>
  3. What are examples of major companies in the drugs sector?

    Identify the major players in the drugs sector, which include many established pharmaceutical companies that have delved ... Read Answer >>
  4. Why should an investor include an allocation to the drugs sector in their portfolio?

    Learn why investors should consider allocating assets to the drug sector as part of a diversified investment portfolio and ... Read Answer >>
  5. What percentage of a diversified portfolio should be invested in the drugs sector?

    Learn how to determine how much of a diversified portfolio should be devoted to the pharmaceutical and biotechnology segments ... Read Answer >>
  6. How does the risk of investing in the drugs sector compare to the broader market?

    Learn how the risk of investing in the drugs sector compares to the broader market and what steps investors take to mitigate ... Read Answer >>
Related Articles
  1. Investing

    IBB: iShares NASDAQ Biotechnology ETF

    Learn about the iShares Nasdaq Biotechnology exchange-traded fund, which offers one of the most diversified ways of investing in the biotechnology sector.
  2. Investing

    Biotech ETF Investors are Still on the Sidelines

    Biotech ETFs are surging, but investors aren't taking the bait. Not yet, at least.
  3. Investing

    A Primer On The Biotech Sector

    Investing in the biotech sector can involve both huge losses and major gains.
  4. Investing

    BBP: BioShares Biotechnology Products ETF

    Learn more about the BioShares Biotechnology Products fund, an exchange-traded fund that is focused on producers of FDA-approved drugs.
  5. Investing

    Are Bears About to Burst the Biotech Bubble? (IBB, BIB)

    The recent biotech rally has richly rewarded many investors. So will the fortunes be soon swept away?
  6. Investing

    The Top 5 Biotechnology ETFs for 2016 (XBI, IBB)

    Read analyses of the top biotech ETFs for 2016, and learn about the characteristics of the funds that may be poised to rebound.
  7. Investing

    Risks and Rewards of Biotech Companies

    We look at the risks and rewards of investing in biotech companies.
  8. Investing

    Politics Plague Biotech ETFs

    Biotech ETFs are closely tracking President Trump's rhetoric.
  9. Investing

    3 Volatile U.S. Industries to Exploit in 2016 (VRX, IBB)

    Read about volatile sectors in the stock market that may provide opportunities for investors in 2016, including energy, mining and biotechnology.
  10. Investing

    Trump Foreshadows a Bleak Outlook for Biotech

    Biotech sector stocks surged after the election, but pulled back when Trump targeted drug companies.
  1. Biotechnology Industry ETF

    An exchange-traded fund that invests specifically in the rapidly ...
  2. Stock And Warrant Off-Balance Sheet R&D - SWORD

    A financing option developed to help biotechnology companies ...
  3. New Drug

    A new medication or therapy that has not been used before in ...
  4. Healthcare Sector

    The healthcare sector consists of companies that provide medical ...
  5. Orphan Drug Credit

    A federal tax credit that provides an incentive for pharmaceutical ...
  6. Orange Book

    A list of drugs that the U.S. Food and Drug Administration has ...
Hot Definitions
  1. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  2. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
  3. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  4. Solvency

    The ability of a company to meet its long-term financial obligations. Solvency is essential to staying in business, but a ...
  5. Dilution

    A reduction in the ownership percentage of a share of stock caused by the issuance of new stock. Dilution can also occur ...
  6. Agency Problem

    A conflict of interest inherent in any relationship where one party is expected to act in another's best interests. The problem ...
Trading Center