Finance in Biotechnology

Finance Class Response

Response

It would also be nice to know if the companies identified in the study as being traded "at prices unheard of" are still as strong as they appeared the time the article was written. Not only would this knowledge help determine the current trends in the biotech industry during the current economic turbulence, but it would also give an idea as to industry stability overall. As with any technology-based industry, both advances and setback can be quick and alarmingly large; there is a high enough volatility in this industry without the addition of a credit crisis and a scared market. I also find the reference to "tools for manipulating molecules" incredibly vague. Nanotechnology has been in existence -- and is operational in some applications, if I am not mistaken -- for some time now, and this is precisely the type of technology that is being referenced. An explanation of current trends of development in this area instead of a broad mention of the area itself would have made the article of more practical use.

Response 2:

For the same reasons that smaller biotechnology carry more risk with each product, they are also more dependent on the profits from that product. By refraining from licensing until the drugs has made it through pre-clinical and phase one trials, the company is able to leverage a much bigger profit out of licensing deals because they are ten licensing a product that has already been proven of some value in a concrete way. It is certainly riskier to hold on to the product instead of transferring that risk through licensing, but I think you may be exaggerating that risk; I agree with the authors that the payoff, if the firm is able to get the product through testing, is well worth the risk. I also see collaborative development financing more as a means of generating capital than mitigating risk. The option to reacquire allows for an opportunity for increased rewards, but the cost of initial development is shared.