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. 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 >>
  2. 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 >>
  3. 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 >>
  4. What options strategies are best suited for investing in the drugs sector?

    Learn how the covered call strategy works well with the pharmaceuticals segment of the drugs sector and how the long straddle ... Read Answer >>
  5. What countries comprise the majority of the global drugs sector?

    Find out which countries are the largest producers of pharmaceutical products in the world and why the United States dominates ... Read Answer >>
  6. How can I profit from a decline in the drugs sector?

    Learn how to profit from a decline in the drugs sector by short selling drug stocks or by purchasing futures contracts and ... 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 Quick Guide To Healthcare ETFs

    The healthcare industry offers a broad variety of sector ETFs but it’s difficult to avoid exposure to pharmaceuticals and biotechnology .
  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. Trading

    Biotech Breakouts Suggest It Is Time to Buy

    Bullish chart patterns on key biotech names are presenting traders with the best risk/reward setup of 2017.
  7. Trading

    Charts Suggest 2017 Will Be the Year of Biotech

    The charts of these biotech ETFs suggest that now is the time to buy.
  8. 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.
  9. Investing

    Evaluating Pharmaceutical Companies

    Learn how to find a healthy pharmaceutical investment in a market full of weak drugs.
  1. Biotechnology Industry ETF

    An exchange-traded fund that invests specifically in the rapidly ...
  2. Pharmaceutical Industry ETF

    A sector-following fund that invests in developers and manufacturers ...
  3. Food And Drug Administration - FDA

    A government agency established in 1906 with the passage of the ...
  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. Biotech Compound

    A chemical entity that forms the starting point in the drug development ...
Hot Definitions
  1. Risk Tolerance

    The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important ...
  2. Donchian Channels

    A moving average indicator developed by Richard Donchian. It plots the highest high and lowest low over the last period time ...
  3. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  4. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
  5. Stop Order

    A stop order is an order to buy or sell a security when its price increases past a particular point in order to limit losses ...
  6. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
Trading Center