DEFINITION of 'Biotech Compound'

A chemical entity that forms the starting point in the drug development process. A compound has the ability to modify the action of a target molecule involved in a disease. Identifying a compound that has the potential to be developed into a drug is an extremely laborious and time-consuming process, as numerous compounds lack the properties required for a drug. In order to identify such a compound, a pharmaceutical or biotech’s research team has to develop synthetic analogs of many compounds and test them until they find one with the required attributes. New compounds are generally classified as new molecular entities (NMEs) for Food and Drug Administration (FDA) review purposes. Also called “lead compound.”

BREAKING DOWN 'Biotech Compound'

A compound has to satisfy numerous tests before it can be marketed as a new medication or therapy. A compound may show a lot of promise in treating a specific disease or indication at the initial stages, but it may fail to clear any of the numerous hurdles that it has to surmount before it becomes a marketable drug. Not many compounds can pass these rigorous tests. In fact, less than 1 in 20 compounds will end up getting marketing approval from the FDA.

A successful compound has to be safe, effective, and have no major side effects. A compound that is initially safe and effective may prove to have unexpected side effects when it is administered to tens of thousands of patients upon approval. If it is subsequently withdrawn, this may cost the sponsor company hundreds of millions, if not billions, in terms of lost future revenues and unrecoverable drug development expenses.

Since the costs involved in the drug development process increase exponentially as the compound moves further along the FDA approval path, pharmaceutical and biotech companies have been exploring ways to identify potential problems with compounds sooner rather than later. In order to expedite screening of as many compounds as possible, companies use methods such as genomics-based screening, rational drug design, combinatorial chemistry, and high throughput screening (HTS) systems. The development of these methods, which has enabled researchers to better understand cell processes and optimal ways to synthesize compounds, has resulted in a huge increase in the number of compounds in the human clinical trials stage that originated from the field of biotechnology.

 

RELATED TERMS
  1. Compound Interest

    Compound Interest is interest calculated on the initial principal ...
  2. Discrete Compounding

    Discrete compounding refers to the method by which interest is ...
  3. Continuous Compounding

    The process of earning interest on top of interest. The interest ...
  4. Effective Annual Interest Rate

    Effective Annual Interest Rate is an investment's annual rate ...
  5. Compound Return

    The compound return is the rate of return that represents the ...
  6. New Drug

    A new medication or therapy that has not been used before in ...
Related Articles
  1. Investing

    Accelerating Returns With Continuous Compounding

    Investopedia explains the natural log and exponential functions used to calculate this value.
  2. Investing

    Understanding the Power of Compound Interest

    Understanding compound interest is important for both investing and borrowing money.
  3. Investing

    Overcoming Compounding's Dark Side

    Understanding how money is made and lost over time can help you improve your returns.
  4. Personal Finance

    APR and APY: Why Your Bank Hopes You Can't Tell The Difference

    Banks use these rates to entice borrowers and investors. Find out what you're really getting.
  5. Financial Advisor

    Compound Annual Growth Rate (CAGR)

    The compound annual growth rate is an important tool for measuring investment performance and comparing it across asset classes. Discover how it is calculated and how it can inform your investment ...
  6. Retirement

    Compounding Is Important in the Later Years Too

    The power of compounding is even greater in the later years of saving for retirement.
  7. Investing

    A Primer On The Biotech Sector

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

    Using DCF In Biotech Valuation

    Valuing firms in this sector can seem like a black art, but there is a systematic way to pin a price on potential.
  9. Insights

    Pharmaceutical Vs. Biotech Investing: Is It Worth The Risk?

    Investopedia explains: Both pharma and biotech stocks are faced with a costly process that, when successful, can produce extremely profitable products. However, the process is unpredictable.
RELATED FAQS
  1. What formula can I use to calculate interest on interest?

    Find out more about compounding interest, what it measures and how to calculate the amount of compound interest accrued using ... Read Answer >>
  2. How to calculate compound loan interest in Excel?

    Find out about compound interest and how to use the compounding interest formula in Microsoft Excel to calculate the compound ... Read Answer >>
  3. How do I use the rule of 72 to calculate continuous compounding?

    Find out why the rule of 72 does not accurately reflect the growth caused by continuous compounding, and which number can ... Read Answer >>
  4. How do I calculate compound interest using Excel?

    Learn what compound interest is, the formula used to calculate it, and how to calculate it using three different techniques ... Read Answer >>
Hot Definitions
  1. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component ...
  2. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  3. Capital Asset Pricing Model - CAPM

    A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. ...
  4. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability of potential investments.
  5. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  6. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different ...
Trading Center