The their life cycles. Many of these companies

The biotech industry is an extremely powerful up and coming field of business.  With over 500,000 jobs in the US, this growing field is starting to contribute greatly to the US economy.  According to the Biology Technology Organization, biotechnology is simply “technology based on biology – biotechnology harnesses cellular and biomolecular processes to develop technologies and products.”  The technologies and products include, food technology, genetic research, healthcare, and environmental technology.  There are many factors that make biotech companies a more risky investment compared to other industries such as tech.  The biotech industry contributes greatly to the factors of the US economy, however, compared to other industries the biotechnology industry is more sensitive to economic factors such as changes in GDP, interest rates, and exchange rates.The type of business model a biotechnology company chooses depends on capability, availability of resources, and competition in the given industry.  There are product based companies, subscription companies, and service companies.  Most biotechnology companies, unlike their pharmaceutical counterparts, are relatively in the early stages of their life cycles. Many of these companies rely on the financial markets, venture capital, leverage, and partnerships to fund their operations. Mature pharmaceutical companies, on the other hand, finance their research expenses through internally generated cash flows.For these small biotech companies to succeed their drug needs to be approved by a country’s Food and Drug Administration (FDA).  The FDA’s drug approval process is extremely thorough, lengthy, and expensive.  Companies can struggle financially as they move through the approval process.  Before a drug makes it to market it to market it must go through many important regulatory steps; drug discovery, preclinical development, investigational new drug application, clinical phase one, two and three, new drug application, advisory committee, and then finally approved/ not approved. Each step in the approval process is risky and expensive.  A failure at any stage can be fatal to an early stage company.  The drug development process begins with drug discovery, an extremely capital-intensive, risky phase. It’s estimated that about 1 in 10,000 drug molecules in the drug discovery phase achieve final approval.  The second phase once proof of concept has been achieved, is on animals and then there is submission to human testing. Although a company might be approved in United States, that does not mean the drug is going to be approved in other countries each country requires its own test to prove safety and efficiency.  The overall chance that the drug is approved during this process is extremely low because of the extensive testing that is done during these trials, this is another example of how this industry can fluctuate much more than others.  Young biotechnology companies  are more research and development  focused compared to pure-play pharmaceutical companies. The majority of biotechnology companies, unlike their pharmaceutical counterparts, is relatively in the early stages of their life cycles.  An Inflationary economy may forced the central bank to raise interest rates. Higher cost of borrowing negatively impacts a biotech’s ability to fund operations.  Due to the risky nature of their business they already pay a premium to borrow and higher interest rates make it even more difficult and expensive to fund operations through leverage.    Biotechnology companies with substantial exports benefit in periods of weak currency markets. Some companies use hedging and other financial instruments to manage currency risk.  In the fourth quarter of 2008, amid an economic downturn, biotechnology companies such as Amgen, Celgene , Biogen , and Gilead Sciences  beat analysts’ expectations. This was because of mostly better than expected international sales supported by a weak dollar. Favorable currency movements helped support revenues of export-oriented biotechnology companies.Gross Domestic Product or GDP is defined as, “Gross domestic product is the best way to measure a country’s economy. GDP is the total value of everything produced by all the people and companies in the country.”  When GDP is low in a certain country, that means that less money is in circulation and the overall economy is doing poorly.  When this type of GDP occurs, investors are hesitant with their money and are not looking for risky investments.  In terms of investments,  biotech companies are considered relatively risky investments due to a number of factors.  GDP being low also means that there is less money accessible to biotech companies and overall it brings down the economic state of the company.   When GDP is low, it can put a short end to some biotech companies.    The biotech industry has already been contributing immensely to the United States economy despite previously stated factors.  The reason there is so much confidence in the industry is because it is a new and exciting field with a new potential market to tap into.  Because of this new market to tap into, there is a huge risk.   There are more than 600 biotech firms in the Asia-Pacific region. But America’s quoted companies account for almost three-quarters of global revenues.  There has already been great success in the industry already,  creating 437,400 U.S. jobs.  In addition to all of these jobs created,  the biotech industry also contributes to $47 billion in additional revenues,  $11 billion in research & development spending and, $10 billion in tax revenues, including federal, state and local taxes.  With all of this revenue and capital that is already being created.The biotech industry contributes greatly to the factors of the US economy however, compared to other industries the biotechnology industry is more sensitive to economic factors such as changes in GDP, interest rates, and exchange rates.  We have seen how these different aspects of economics force the biotech industry to fluctuate.  This is due to the extreme difficulty of the industry and the intensity of the approval process for drugs.  This fluctuation can be the end to certain biotech companies especially those who do not have the financial backing to succeed any further.  


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