Biotech Surging

The Biotech industry has experienced cycles of boom and bust since its inception in the 1970. Last year more biotechnology companies joined American stock markets and raising more money than at any time since 2000. During the last year, S&P 500 index went up by 20% while shares in biotech rose by almost three times as much.

One reason for the 2000 boom was that investors who made lucrative profits from internet firms were excited and optimistic about the idea of HGP (Human Genome Project) and how this would pump out many profitable new treatments. However, you have to consider the complexity of Biology and how drugs many times tend to be too toxic to be used or not as effective as they should.

According to The Boston Consulting Group, 90% of the money that went towards researching for new treatments goes on drugs that fail at the end. Even if a company comes out with a drug that works, it has many obstacles to overcome such as tough regulations, and convincing of governments and patients whose wondering if the drug is worth the money.

However, overcoming these obstacles can results in huge returns. In December of last year, America's FDA approved Sovaldi, a treatment for hepatitis C and now it could earn more than $3 billion this year for its maker. Biogen Idec, a firm from Massachusetts, is looking to make over $1 billion a year from a recently FDA  approved Tecfidera, a pill for multiple sclerosis. But the real question is can these successes continue in the future?

There are few reasons to be optimistic about biotech firms prospering. First is many smaller firms are taking the role of being the research engines for bigger companies. For example Sanofi, a pharmaceutical firm from France, who is now depending on an American biotech firm called Regeneron to help drive its growth, will put about $1 billion into Regeneron's research program.

Second and more important, companies are finally starting to benefit from studying the human genome. As researches on the underlying genetic causes of a disease are being done, many new ways to developing treatments are opening. For example, Vertex has a drug to treat a subset of patients with cystic fibrosis, thanks to a better understanding of the faulty gene that causes it. Bluebird bio, one of Celgene’s small partner firms, which Third Rock also financed, is working on a treatment for sickle-cell disease that inserts into the patient’s blood cells a properly functioning version of the faulty gene that causes the inherited ailment.

Advances in genomics are making clinical trials smaller and cheaper, since it is now easier to identify which patients have the specific genetic trait that a new drug is aimed at. This makes it more worthwhile to research diseases that are rare, and those that have so far proved intractable. The FDA gives special consideration to drugs that treat such ailments, so companies can expect a speedier path to approval.