Future of the Biotech Industry

Written By Brian Hicks

Posted March 7, 2013

Those who have been paying close attention to the biotech industry know that 2012 was a banner year. This comes as a result of the fact that last year saw a sharp increase in FDA drug approvals, as well as a great deal of mergers and acquisitions. 

According to MarketWire, the iShares NASDAQ Biotechnology Index (NASDAQ: IBB), SPDR S&P Biotech ETF (NYSE: XBI) and First Trust Amex Biotechnology Index (NYSE: FBT) all gained 20 percent in just the last year alone, serving to outperform the markets by quite a margin.

In 2012, drug approvals by the FDA reached a 15 year high, according to Bloomberg. 39 medicines were approved last year, which marks a 30% increase in comparison to the year before. Among the leading type of drugs are those which deal with oncology, which account for 11 of the 39 from last year. Prior to 2012, the FDA had typically approved approximately 23 drugs per year.

It’s difficult to say exactly why the biotech industry has been doing so well in terms of prescription drug approvals, but there are a variety of things that have made this possible. Advancements in medical technology are, of course, worth giving credence to here.

But perhaps the most important change comes down to the passing of the Prescription Drug User Fee Act (PDUFA), which—according to FDA spokeswoman Sandy Walsh—“has provided critical resources for improving the quality and timeliness of premarket drugs,” as Bloomberg reports. She attributes such accomplishments to the innovations in the biotech industry, as well as the “dedication and skill of FDA’s drug review staff.” 

In order to get a better sense of just how strong 2012 has been for biotech companies, it’s important to take a look at some of the firms that have been making actual strides as of late. 

A list put together by the Silicon Valley Business Journal puts Agilent Technologies (NYSE: A) at the number 5 spot for top biotech firms of the past year, stating that their most recent four quarters of revenue sits at $3.6 billion. Life Technologies Corp (NASDAQ: LIFE) is number 4 at $3.8 billion, followed by LabCorp (NYSE: LH) at $5.7 billion, Gilead Sciences Inc. (NASDAQ: GILD) at $9.7 billion, and Genentech Inc. at a whopping $14.7 billion. Needless to say, all of these companies had banner years in 2012, and it doesn’t look like that is going to change in 2013.

One of the most important things to think about from an investor’s standpoint is whether or not things will continue to grow for biotech firms in 2013. With 2012 being such a strong year, it makes perfect sense that things would continue to improve through this year and potentially further.

There are a variety of factors coming into play here. For one, the FDA’s Prescription Drug User Fee Act has had a major impact on the amount of drugs that were approved last year, and this is very much likely to extend into this year and further. With more and more drugs getting approved, the biotech industry is sure to keep expanding and taking things to the next level.

Another aspect that has had a major impact on the amount of drug approvals (and thus business) garnered by the biotech industry is the fact that industry advancements are happening on a level that most people aren’t used to seeing. Technology is advancing quickly; there’s no getting around this fact.

Because of this, newer, more advanced drugs can be created more quickly than ever before, and given the fact that approvals are also coming quicker, it stands to reason why the biotech industry is likely to continue to enjoy its “golden age.”

Since healthcare is a rather large issue in American politics, biotech can expect to likely see even more growth. Advancements in drug production means that the healthcare industry is likely to see a fair amount of changes in upcoming years, especially given the fact that Obama’s healthcare act has already started to come into play. 

As one might expect, then, investors are keeping a close eye on the biotech industry and the advancements that are quickly coming into play, as this year and those coming are likely to be quite prolific for the industry.  

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