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There seems to be a lot of confusion in the investment community and press about what a biotechnology company is and what a pharmaceutical company is. This can be important for many reasons including what the perceived value of the company is. It seems that this should not really make a difference but that a company's financial statements, size of the addressable market of the proposed drug and potential growth of the company should really govern the company's market capitalization. In an effort to simplify the difference between what a biotechnology and a pharmaceutical company often the process for manufacturing the drug or therapeutic agent seems to be the standard proxy. The most common what to characterize whether a company is a biotechnology company or a pharmaceutical company is if recombinant DNA is used as the process for manufacture of a drug candidate versus using a chemistry process to synthesis the drug candidate. This is an oversimplification. A biotechnology company can also be a pharmaceutical company but a pharmaceutical company may not always be a biotechnology company. Generally, the press, the investment community and the most common classification systems for characterizing what industry a company developing drugs is in tends to classify all companies as a biotechnology companies based on whether or not they drug development process is based on use of recombinant DNA rather than chemical synthesis. This categorization is not necessarily mutually exclusive and leads to confusion for potential investors. It also leads to poor taxonomies and descriptions of what a biotechnology company is. A biotechnology company can be a pharmaceutical company. A pharmaceutical company should be any company that has a drug approved for the sale and use in treating a disease or condition by the Food and Drug Administration ("FDA"), European Medicines Agency ("EMEA") or other similar regulatory body. Whether a pharmaceutical company used recombinant DNA process versus chemical synthesis should be irrelevant for determining whether it is a pharmaceutical company. However, it is relevant for determining whether a company is or is not a biotechnology company. If a company has an approved product or is still developing a drug, it can be a biotechnology company as long as it is using a biotechnology process such as recombinant DNA to develop its drugs. They are not mutually exclusive in the characterization of a company that develops or markets drugs. It is better to characterize companies that have drugs approved for treating a condition or disease as a pharmaceutical company. There are huge companies with significant revenues such as Biogen Idec, Amgen, and Genetech whose products are based on the biotechnology process that are both biotechnology companies and pharmaceutical companies. But there are others that have drugs solely based on chemical synthesis that are not biotechnology companies. Clarifying this would reduce a great deal of confusion in the investment community and may lead to more rational valuations that are based solely on financial statement and revenue growth rather than the belief that biotechnology companies are doing something unique and merit a higher valuations.
Jonathan Wright is the founder of HealthcareFirms.com a minority owned company. Prior to founding the HealthcareFirms.com website directory, he held c-level positions at NASDAQ listed biotechnology companies, in software and the legal industries. Mr. Wright determined that there was need for a web site directory focused on listing companies in the healthcare industry as every other healthcare website directory was focused on web based companies.
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