A NYT article (2/11/2007) titled "It's Alive! Meet One of Biotech's Zombies" describes insight into the biotechnology industry. At first glance, it appears that biotech companies bring nimble, entrepreneurial qualities to the pharmaceutical industry which are lacking within Big Pharma (large traditional pharmaceutical companies). The article shows that's not true.
The article quotes Arthur D. Levinson, chief executive of Genentech, as saying "biotechnology has been one of the biggest money-losing industries in the history of mankind.” He estimated that the biotech industry as a whole has lost nearly $100 billion since Genentech opened its doors in 1976. Only 54 of 342 publicly traded American biotech companies were profitable in 2006, according to Ernst & Young.
The article also offers insights from an industry observer. Gary P. Pisano, a Harvard Business School professor has put forth a new book, “Science Business: The Promise, the Reality and the Future of Biotech,” in which he argues that the biotechnology industry is inefficient — or at least no more efficient at drug development than Big Pharma.
If the biotech industry is no more efficient than Big Pharma, then their presence is merely a version of the "lottery principle" articulated by Alan Greenspan during the roaring 90s and not a superior way to invest in the health care industry.
In this post, I was focused on efficiency rather than effectiveness. "Efficiency" is a term related to the mass market effect of blockbuster drugs. Biotechnology has promise for more designer based type drugs which has to be measured on effectiveness - not from the company P&L, but on the impact to the individual and the healthcare system costs.
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