Biotechnology is a diverse field dealing with the application of biological discoveries to industry, agriculture, and medicine. From an investment perspective, it has fallen victim to the same hype that plagued artificial intelligence (AI), real estate, junk bonds, and, most recently, dotcoms.
Much of this hype can be attributed directly to overzealous promotion of the potential of biotechnology companies to cure diseases, develop new drugs, and feed the world’s hungry through genetically engineered foods.
In addition, the press has naturally gravitated to the more sensational aspects of biotechnology, from the race to sequence the human genome to the wild speculation over the value of newly discovered genes for curing medical maladies from obesity to cancer. In the resulting confusion over what is real and what is fanciful speculation, biotechnology is variably portrayed as either the next dot-com ride for those with excess capital to invest or as simply not worth following as an investment vehicle. The public outcry over cloning, over the use of embryonic stem cells, and over the potential threat to the environment from genetically modified foods has also heightened the uncertainty of the short-term performance of investments in biotechnology.
To ignore the field as an investment vehicle because of less than triple digit returns on investment is myopic at best. In many firms and academic centers, scientists, engineers, and entrepreneurs are diligently engaged in successful research and development of the core technologies that are resulting in practical applications and products. As a result, few dispute the belief that biotechnology is the seed of an inevitable revolution of business— and life on this planet—that will have a much larger social, environmental, religious, ethical, and business impact than the industrial or technology revolutions. The issues revolve around timing, the sequence in which specific sectors of the biotechnology industry will blossom, and the risk associated with some of the more technically challenging or politically charged biotechnologies.
The ongoing biotechnology revolution invites comparison and contrast with the information technology revolution of the previous century.
For example, there are global pockets of technical expertise, capital, and demand for high-technology goods and services, and these areas don’t necessarily overlap geographically. For example, a labor force of predominantly Asian heritage is fueling many advances in the biotechnology field. Several hundred thousand researchers from Asia are studying and working in the biotechnology industry in the United States and Europe. Furthermore, in the increasingly shrinking global economy, many of these researchers rotate between centers of excellence in Asia and the West. Instead of value chains built around RAM, motherboards, and computer subsystems, the commodities of the biotechnology arena are sequencing machines, gene chips, and the myriad data that these and similar devices produce. The data, are massaged, transported, analyzed, and stored on the computers and with the software made readily available by enabling information technologies.
Investment in biotechnology varies considerably from one country to the next by virtue of corporate and government funding, variations in public acceptance of biotechnology products, and the country’s political environment. Since all of these factors are rarely favorable in any one place, a mosaic of interdependencies results that serves to drive international cooperation on a variety of levels. For example, the bright spots of government and corporate funding of biotechnology research and development are in the United States and Europe, but research and development there, in several key areas, is less than optimal. Much of Europe restricts or tightly controls genetically modified agricultural products, and, with the exception of California, the United States is an unfriendly environment for companies doing stem cell research and certain forms of cloning and genetic engineering. In contrast, the sociopolitical environments in Asia, Australia, and New Zealand are not only receptive to biotechnology research in excelling in stem cell research and other U.S.- sensitive areas, but they actively support research activity. Genetically modified foods are consumed by unknowing—or uncaring—consumers in the United States and China, while Mexico and many countries in Africa are beginning to prohibit the importation of genetically modified foods because of health concerns and to protect the local ecology from possible contamination by a genetically modified crop. Japan is a major driver for the pharmaceutical industry because it ranks third worldwide in its consumption of pharmaceuticals.
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