What Is Biotechnology?

Biotechnology is a science-driven industry sector that makes use of living organisms and molecular biology to produce healthcare-related products and therapeutics or to run processes (such as DNA fingerprinting). Biotechnology is best known for its increasingly important role in the fields of medicine and pharmaceuticals, and is also applied in other areas such as genomics, food production, and the production of biofuels.

Key Takeaways

  • Biotechnology is the branch of applied science that utilizes living organisms and their derivatives in order to produce products and processes.
  • These products and processes can apply to several aspects of the economy ranging from healthcare and medicine to biofuels and environmental safety.
  • Biotechnology (biotech) companies derive their products from the extraction or manipulation of living organisms, and comprise an important industry sector in the economy.
  • Biotech stocks are seen as quite risky investments since they are often unprofitable until a drug or theraputic has had enormous amounts of R&D investment, which may or may not pay off.

Understanding Biotechnology

Biotechnology involves understanding how living organisms function at the molecular level, so it combines a number of disciplines including biology, physics, chemistry, mathematics, science and technology. Modern biotechnology continues to make very significant contributions to extending the human lifespan and improving the quality of life through numerous ways, including providing products and therapies to combat diseases, generating higher crop yields, and using biofuels to reduce greenhouse gas emissions. Hungarian engineer Karl Ereky reportedly coined the term “biotechnology,” which is often referred to as “biotech,” in 1919.

Companies in the biotech space tend to face significant barriers to success. One critical reason for this is that research and development costs for biotech names tend to be incredibly high. While a company is focusing its time and money in these areas, there's usually very little by way of revenue. It's not uncommon, therefore, for biotech companies to work together with larger, more established firms in order to achieve their research and development goals. Before these goals are met, a biotech company is incredibly fragile. Perhaps this is why the biotech space, while always growing with new names, has more and more come to be dominated by a small group of large companies in recent years. Biotechnology companies are thus almost always unprofitable (some suggest that the distinction between "biotech" and "pharmaceutical" company lies in profitability), and many have no real revenue at all.

Biotechnology is also characterized by long development lead times; it can take as much as a decade to get a new drug from test tube to pharmacy shelf. What's more, there is an overwhelming likelihood of failure, as 85% to 95% of all prospective new drugs fail to reach approval. Still, for those that succeed, the rewards can be tremendous and "daily doubles" are not unheard of.

(For a background reading, see The Ups and Downs of Biotechnology.)

History of Biotechnology

Biotechnology in its basic form has existed for thousands of years, dating back to an era when humans first learned to produce bread, beer and wine using the natural process of fermentation. For centuries, the principles of biotechnology were restricted to agriculture, such as harvesting better crops and improving yields by using the best seeds, and breeding livestock.

The field of biotechnology began to develop rapidly from the 19th century, with the discovery of microorganisms, Gregor Mendel’s study of genetics, and ground-breaking work on fermentation and microbial processes by giants in the field such as Pasteur and Lister. Early 20th century biotechnology led to the major discovery by Alexander Fleming of penicillin, which went into large-scale production in the 1940s.

Biotechnology took off from the 1950s, spurred by a better understanding in the post-war period of cell function and molecular biology. Every decade since then produced major breakthroughs in biotechnology. These include the discovery of the 3D structure of DNA in the '50s; insulin synthesis and the development of vaccines for measles, mumps and rubella in the '60s; massive strides in DNA research in the '70s; the development of the first biotech-derived drugs and vaccines to treat diseases such as cancer and hepatitis B in the '80s; the identification of numerous genes and the introduction of new treatments in decades for managing multiple sclerosis and cystic fibrosis in the '90s; and the completion of the human genome sequence in the '90s, which made it possible for scientists worldwide to research new treatments for diseases with genetic origins like cancer, heart disease, and Alzheimer’s.

Biotech Today

The biotechnology sector has grown by leaps and bounds since the 1990s. The industry has spawned giant companies in the medical space such as Gilead Sciences, Amgen, Biogen Idec and Celgene. At the other extreme are thousands of small, dynamic biotech companies, many of which are engaged in various aspects of the medical industry such as drug development, genomics, or proteomics, while others are involved in areas like bioremediation, biofuels and food products.

There also have been big product introductions in biopharma drugs. Some of the most frequently used biotechnology medical products recently introduced include the following:

  • AbbVie's Humira is used to treat arthritis, psoriasis, and Crohn's disease, among other ailments.
  • Roche's Rituxan is used to slow the growth of tumors in several types of cancer.
  • Amgen/Pfizer's Enbrel is used to treat several autoimmune diseases.

The top U.S.-based biotechnology firms in terms of market capitalization as of the end of 2018 were Amgen Inc., Gilead Sciences, Celgene Corp., and Biogen Inc.

In recent years, biotechnology startups have sprouted alongside computer technology companies in Silicon Valley with the emerging field of bioinformatics. The aim of most is to use biotechnology processes to create breakthrough drugs.