NCPA - National Center for Policy Analysis


May 24, 2004

Over the last 25 years, stock market investors have injected close to $100 billion into the biotechnology industry. The result has been the development of more than a hundred new drugs and vaccines -- and more than $40 billion in cumulative net losses, say observers.

Investment in biotech has made possible many medical breakthroughs: more than 150 such advances have been approved by the Food and Drug Administration, 70 percent of them in just the past six years. Yet biotechnology stocks are tremendously volatile because they are often driven by speculation about the unknowable.

As a result, home runs in biotechnology are scarce, but they can be lucrative. For instance, a $1,000 investment in Amgen Inc. at its initial offering in 1983 would now be worth almost $150,000. Of course, for every hit, there are many misses:

  • In 2003, publicly traded biotech companies in the United States posted a net loss of $3.2 billion, up from losses of $9.4 billion the year before.
  • Almost one-sixth of the more than 350 public biotech firms over the last twenty years either were bought out for pennies on the dollar, dissolved themselves, or filed for bankruptcy by 2003.
  • Publicly traded biotechnology companies in the United States lost $41 billion from 1990 to 2003, compared to $5 billion in losses for the much-maligned airline industry from 1947 to 2003.

Moreover, for every dollar invested in an index of biotech stocks weighted by market capitalization in 1981, the return would have been worth $7.92 by the end of 2003. By contrast, a dollar's worth of the Dow Jones Industrial Average in 1981 with dividends reinvested would have grown to $20.78 over the same period. Sunk into 20-year Treasury bonds with the proceeds reinvested, that dollar would have been worth $11.94.

Source: David P. Hamilton, "Biotech's Dismal Bottom Line: More Than $40 Billion in Losses," Wall Street Journal, May 20, 2004.

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