What is the difference between a Biotech company and a Pharmaceutical company?

There’s a lot of gray area when we try to classify companies, especially when they are as tangled as the medical industry. As companies try to incorporate different products, services, and therapies into their pipelines, the traditional distinctions make less sense.

There are some key points in mind that investors use to identify all the different types of companies.

1)      Biotech companies

To begin with, biotechnologies are more risk-taking developers, while pharmaceuticals generally have various drugs at different stages of development from successful drugs in the market, drugs being developed, as well as a research team developing new drugs in the future.

Biotechnology used to indicate technology or drugs developed from living organisms, but as the phrase became more common and the lines distinguishing what was developed from a living organism became progressively unclear, the term slowly encompassed any company that was in early stages of developing medicine.

2)      Dividends

Another distinguishing feature is that Biotechs never pay dividends, as most of the time, Biotech companies are in very early stages of their development cycle and need their raised capital and cash to keep the company afloat while they move through the three stages of FDA approval required to go to market. Even afterwards, Biotech companies will utilize cash for marketing purposes and not for dividends.

Pharmaceuticals, on the other hand, are more stable companies and have well developed pipelines and drugs that can be manufactured, providing stable income.

3)      Pharmaceuticals look to Biotechs

While this is a recent development, and not a universal statement, pharmaceuticals will examine smaller biotech companies and seek to absorb them if their products are promising. That’s not to say that they won’t pursue their own medical and research, but having other companies fail and succeed on their behalf gives them a chance to absorb those companies and their pipelines, offering existing marketing, capital, and opportunity for the drug to go to market, and eliminating the Biotech’s need to build that infrastructure themselves.

Those are just a few ways to distinguish Biotechnology companies from Pharmaceuticals. We will talk more about biotech companies in depth in upcoming blog posts, but hopefully this quick introduction will help investors understand the different aspects of a biotechnology.

Don’t forget to catch Xavier and Alex of Emergent Financial Services every Thursday at 10:15 am on Today y Mañana!

Until next time,

I’m Nickolas Urpí