Similar yet different. You can probably think of several things that meet this description. Butter and margarine. Jaguars and panthers. Jam and jelly. And, for those interested in the prescription drug industry, biotech and pharma.
Some use the terms biotech and pharma interchangeably. However, they’re not exactly the same. The difference between biotech and pharma is that biotech companies make medicines from living organisms called biologics, while pharma (pharmaceutical) companies develop drugs from chemicals.
There are even different regulatory paths for biotech and pharma products in the U.S. Companies that develop therapies made from living organisms must file a Biologics License Application (BLA) to obtain approval from the U.S. Food and Drug Administration (FDA). Companies that develop traditional medicines file a New Drug Application (NDA) to try to secure FDA approval.
Examples of biotech companies
The COVID-19 pandemic brought several biotech companies into the limelight. Moderna (MRNA -6.09%) and Regeneron Pharmaceuticals (REGN -0.26%) especially stand out.
Moderna developed the COVID-19 vaccine mRNA-1273 (later marketed under the brand name Spikevax). This vaccine uses messenger RNA (mRNA) to cause the body to produce proteins that are identical to the spike protein found on the surface of the novel coronavirus SARS-CoV-2. The body then produces antibodies that can fight the coronavirus.
Regeneron’s name might indicate that it’s a pharmaceutical company. However, Regeneron actually meets the definition of a biotech.
The company became practically a household name when its monoclonal antibody COVID-19 therapy REGEN-COV2 was used to treat President Donald Trump in 2020 during his first presidential term. Monoclonal antibodies are clones of a single antibody that are made in labs. In the case of REGEN-COV2, the antibody cloned is one that fights the coronavirus that causes COVID-19.
Regeneron also has several other approved monoclonal antibody therapies. The company partners with Sanofi (SNY +1.50%) to market Dupixent for treating diseases including asthma and atopic dermatitis, Kevzara for treating rheumatoid arthritis, and Praluent for treating high cholesterol and reducing the risk of cardiovascular disease. Regeneron purchased Sanofi’s stake in another monoclonal antibody therapy that the companies co-marketed, cancer immunotherapy Libtayo.
Other monoclonal antibodies in Regeneron’s product lineup include cholesterol drug Evkeeza and Zaire ebolavirus treatment Inmazeb. The company also co-markets the eye disease drug Eylea with Bayer (BAYR.Y +1.63%). Eylea isn’t a monoclonal antibody, but it is a biologic.
Blurring the lines
Technically, Johnson & Johnson and Pfizer could also be viewed as biotech companies. Both big drugmakers develop biologics made from living organisms.
For example, J&J’s Stelara is a monoclonal antibody. So is Darzalex. Some of Pfizer’s top products are biologics, including Comirnaty and Prevnar.
There has been an increasing blurring of the lines between biotech and pharma. Many traditional big pharma companies now develop biologics. Some drugmakers refer to themselves as “biopharmaceutical companies” to reflect their focus on both biologics and traditional pharmaceuticals.
To confuse matters even more, some companies that develop drugs that aren’t made from living organisms are commonly referred to as biotechs. As a case in point, the SPDR S&P Biotech ETF (XBI -2.68%), as its name suggests, owns biotech stocks. Vertex Pharmaceuticals (VRTX +0.23%) is one of the exchange-traded fund's holdings. But neither Vertex’s best-selling cystic fibrosis (CF) drug, Trikafta, nor the company's other CF drugs, are biologics.
It has become widely accepted to categorize all small drugmakers as belonging to the biotech industry, even when they don’t meet the definition of a biotech. Madrigal Pharmaceuticals (MDGL -3.53%), which has a relatively small market cap and has "pharmaceuticals" in its name, is a holding of the S&P Biotech ETF. However, Madrigal's only approved product, metabolic-associated steatohepatitis drug Rezdiffra, isn't a biologic.
Biotech vs. pharma: What's the difference?
How can you differentiate between a biotech company and a pharmaceutical company? The following table provides a quick way to determine which category a drugmaker belongs to:
Factor | Biotech | Pharma |
|---|---|---|
Type of therapy made | Medicines made from living organisms (called biologics). | Medicines made from chemicals. |
Regulatory approval process | Must file a Biologics License Application (BLA) to obtain approval from the U.S. FDA. | Must file a New Drug Application (NDA) to obtain approval from the U.S. FDA. |
Size | Can be any size, but many small drugmakers are categorized as biotech companies. | Can be any size but are often large drugmakers. |
Considerations for investors
- Big pharma stocks, such as Johnson & Johnson and Pfizer, typically will be less volatile than smaller biotech stocks, primarily because of the larger companies’ size and financial strength.
- However, large biotech companies will often be less risky than a smaller pharmaceutical company that develops traditional medicines that aren’t made from living organisms.
- With the opportunities for mRNA, monoclonal antibodies, gene editing, and other technologies, it’s likely there will be more biopharma companies in the future than pure biotechs or pharmas.
- Investors are better off focusing on the long-term prospects for the individual companies, regardless of whether their therapies are biologics or traditional drugs.
- Evaluate the management teams, markets for targeted diseases, clinical results of pipeline candidates, and the financial positions of the companies.
- In the end, what really matters is what your potential return could be relative to the risk that you take on.
Related investing topics
The future of biotech and pharmaceuticals
Several trends will likely shape the future of biotech and pharmaceuticals, including:
- Personalized medicine. Biotech and pharmaceutical companies will increasingly focus in the future on developing therapies that are tailored for individuals based on their genetics and lifestyles.
- Gene editing and gene therapy. Approaches such as CRISPR (clustered regularly interspaced short palindromic repeats) gene editing offer the promise to modify DNA to cure genetic diseases.
- Artificial intelligence (AI). Some biotech and pharmaceutical companies are already using AI to discover new drugs. In the future, AI will likely be used much more heavily in predicting how potential medications will interact with the human body.
- Quantum computing. In conjunction with AI, quantum computing could transform drug discovery with its ability to simulate complex biological interactions.
FAQ
Biotech vs. Pharma FAQ
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