Biotechnology Industry

Biotechnology may be defined as the application of molecular and cellular processes to solve social, scientific, and environmental problems, develop new products and services, or modify living organisms to carry desired traits. Arising after the discovery in 1973 of recombinant DNA, biotechnology has been a rapidly growing industry worldwide, with extensive linkages to agriculture, health care, energy, and environmental sciences. In 2005, the U.S. biotech industry (excluding medical equipment firms) consisted of roughly 1,500 firms that employed 400,000 people and generated $64 billion in output. There is a wide range in the size of firms in this industry, including single proprietorships and firms of more than 500 employees; the mean national annual salary in the industry is $62,500, which is well above the national average.

Pharmaceutical firms, which tend to be much larger than biotechnology companies, form the major market for biotechnology products. Large pharmaceutical firms are reliant on biotech clusters for innovative drug solutions, and human therapeutics thus account for the vast bulk of the biotechnology industry's revenues. Other applications are found in agriculture, manufacturing, and veterinary medicine. Many biotech firms enter into alliances with drug manufacturers, who may provide venture capital in return for marketing rights after the product is commercialized.

Venture capital is critical to making basic research in biotechnology commercially viable. Most small biotech firms lose money, given the high costs and the enormous amounts of research necessary to generate their output and the long lag between research and development (R&D) and commercial deployment (generally in the order of 12–15 years of preclinical development). Only 1 in 1,000 patented biotechnology innovations leads to a successful commercial product, and it may take 15 years. Venture capitalists may invest in many biotech firms, and one biotech firm may receive funding from several venture capitalists. Above all, venture capitalists look for an experienced management team when deciding in which companies they are willing to invest. Venture capitalists often provide advice and professional contacts and serve on the boards of directors of young biotech firms. As a biotech firm survives and prospers, its relations with investors often become spatially attenuated—that is, venture capitalists gradually withdraw from day-to-day direct management.

There has been extensive state involvement in establishing biotechnology complexes since the industry began. Because of its rapid growth as well as its demonstrated and potential technological advances, many national science policies target it as a national growth sector. The survival and success of biotechnology firms is heavily affected by federal research funds, primarily through institutions such as the National Science Foundation and the National Institutes of Health. Other federal offices such as the Small Business Technology Transfer, Small Business Innovation Research, Environmental Protection Agency, and the Food and Drug Administration are also significant. Federal policies regarding patents and intellectual property rights, subsidies for medical research, and the national health care programs are all important. Roughly 83% of U.S. state and local economic development agencies have targeted the industry for industrial development. State-level determinants are also critical, including regulatory policies, educational systems, taxation, and subsidies.

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