The terms biotech and pharma are often used interchangeably, and many believe that they depict the same thing. Undeniably, the two have many things in common. However, they are quite different from each other. Both biotechnology and pharmaceutical companies produce medicines, but the medicines manufactured in the biotech sector are produced organically, using elements derived from living organisms. Those manufactured by pharmaceutical companies generally have chemicals and synthetic processes involved. Not only this, they also have different risk profiles. Read on to clear the confusion surrounding these terms.
Biotech And Pharma Basics
Biotechnology firms use organic or living organisms to manufacture products or address problems. Everyday items like beer, detergent, and plastic are all biotechnology products. Biotech companies research, produce, and develop a range of commercial products and also dabble in medical and agriculture applications. The aim of most is to create breakthrough drugs. From an investor’s viewpoint, biotech stocks are stocks in drug development and medical device companies, usually pertaining to smaller organizations. Investors must keep in mind that these stocks are among the most volatile and can have huge swings. Even some of these biotech penny stocks under 10 cents can rake in serious profits.
Pharmaceutical companies, on the other hand, develop and produce medicines made from synthetic resources and methods. The industry typically has a high profit margin and a track record of regular dividend payments. They are steadier and more reliable. Due to the sensitive nature of the products, these companies have to gain the approval of the FDA(Food and Drug Administration) before they can compete in the market, which can take years.
Things To Consider While Investing
Even when looked at from an investor’s point of view, pharma and biotech are very different players. Biotech companies go into huge costs because of the extensive research and testing they involve. The results can go either way and make big bucks or, in fact, plummet the company altogether. The biotech industry often seeks to use new and never-before-used raw materials to develop products that have breakthrough effects. However, these are often banned in many countries and never get FDA approval. This can prove an impediment to creating new products and will influence investors as well. The upside is that if approved, the drug gets patent protection for a decade or more.
Pharmaceutical companies derive income from already established products while continuing to develop and create new products. They have huge capital to pump into their development programs and always tend to have multiple products in various stages of progress, ready to be unleashed.
Before investing in either market, investors must be aware that until the product hits the market, there is no sure way of determining the profits or lack thereof that they are set to make. With the drug industry booming, every product that is released in the market may not always gain common approval and endorsement from experts.
The increased usage of the term pharmacology has definitely complicated matters for anyone but the experts. Biopharma is essentially most similar to biotech companies; however, the terms pharmaceutical and biopharmaceutical are sometimes used interchangeably. The difference between biotech and biopharma is subtle. While biotech uses organisms like bacteria, plants, and animals to develop new products or processes in various industries, biopharma uses biotechnology to develop one type of drug or treatment for human diseases.
Biotech and pharma stocks both entail quite costly and rigorous processes that can make profits skyrocket or plunge. It is to be noted that the time-consuming and tedious means of getting the product ready, finished, and delivered to the market can lead to investor fatigue. Even if the products are successful, the cost over time may or may not be recovered. However, biotech company stocks are among the most volatile of stocks, capable of bringing explosive returns that set up the company as well as investors in a great place for future endeavors. Pharma companies are more capable of handling and withstanding setbacks and derive a steady income from the wide range of products in their arsenal. All you need is to consider all the factors in play and make a well-thought-out investment.