There once was a time when the distinction between biotech companies and pharmaceutical companies was fairly clear. Biotech companies were focused on proteins or large molecules; pharmaceutical companies were focused on small molecule discoveries.
That difference probably didn’t last very long.
As recently as 2015, Investopedia defined it as biotech companies’ drugs having a biological basis and pharmaceutical companies’ drugs having a chemical basis. This is a wildly narrow definition of what goes on, although perhaps that is how Wall Street defines things.
At another level, the primary difference was focus. Biotech companies had a tendency to focus on developing compounds that could be used as drugs. This is still very much the case, with the ultimate goal of the biotech companies falling into three broad future behaviors:
• Developing a molecule, taking it into the clinic, getting it approved, and essentially evolving into a drug company.
• Finding and developing a molecule, at which point the molecule is licensed or the entire company is sold to a pharmaceutical company, which will take it through clinical development and onward.
• Identifying and developing a molecule, taking it through some level of clinical development, and selling the company or the drug, or potentially licensing it. There’s not much difference between this and the previous point, except the point at which the company licenses or sells the molecule and/or itself.
Essentially the last two involve the biotechnology focusing on research and development, not on the marketing or sale of approved drugs.
The current reality is that biotech companies do all of these things, utilizing whatever technology they need to identify and develop a drug or their platform. And, in many cases, so do pharmaceutical companies. In fact, over the years, pharma, enamored with the success of biotech companies, have created similar approaches within their own companies.
So, really, what is the difference?
Size, in most cases. Ellen Clark, president of Clark Executive Search, which placed PhDs and MDs into life science companies, says, “Pharma now has whole divisions of proteins and monoclonal antibodies, and hires those people. That used to be where the biotechs used to shine.”
We often think of biotech companies being scrappy little startups with two or three scientists (and their venture capital investors) working through the night to develop their scientific discoveries into new, future blockbuster drugs. And in numerous cases, that is absolutely true.
It’s also true that Genentech(RHHBY) was probably the first modern biotechnology company, now a subsidiary of international pharmaceutical conglomerate Roche(RHHBY), and employs over 14,000 people. They’re a far cry from, for example, Aeglea BioTherapeutics(AGLE), which launched three years ago with three people and now employs 30.
So for the purposes of this article, biotech companies will be loosely defined as smaller research-and-development companies that focus on identifying and bringing new molecules to the clinic.
Despite the obvious overlap, for this article pharmaceutical companies will be loosely defined as medium-to-large companies involved in drug development, who also have significant clinical, marketing, manufacturing and commercial activities.
So, as a life science professional, which is for you?
Although there are job cuts and downsizing in the pharmaceutical industry, for the most part big pharma is a stable industry. That’s not the most reliable statement in the world, since between 2002 and 2012 the pharmaceutical industry lost about 300,000 jobs, many of them chemists and scientists, according to a Science article.
Much of that job loss was due to merger-and-acquisition (M&A) activity. So “stable” has to be evaluated in comparison to biotech companies, which often are betting on their product proving it’s viable enough to go into the clinic, or viable enough in the clinic to continue while the money lasts. The question often asked is, “How long is your runway?” according to John Lamattinain a 2011 article, “What’s the Key Difference Between Biotech and Big Pharma R&D? Runways.”
What that question means is: How long will your money last?
Although that seems a little cynical, it’s also very realistic. Biotech companies, for the most part, start with a scientific concept, molecule or molecules that theoretically can be used to develop a drug. Typically venture capital firms pony up millions of dollars to form a company around the concept or molecule with the idea that funding will last at least through proof-of-concept, or some other key decision point. If the POC works, then venture capitalists will provide more funding or, as pointed out above, sell the company or the molecule to a bigger company.
Which is where your acceptance of risk comes in. Although similar things can occur in big pharma, the volatility and possibility of the company going under or being gobbled up by another big company that may or may not take you along for the ride is significantly more likely in a biotech company than in big pharma.
“Biotechs are still a risky game,” says Clark. “They have one or two things, then the trial fails and boom, they fire everybody, although upper management manages to make it.”
Location, Location, Location
Big pharmaceutical companies have facilities and offices all over the country and the world. Eli Lilly(LLY) is headquartered in Indianapolis. Pfizer(PFE) headquarters are in New York City. Merck(MRK) is based in Kenilworth, New Jersey. Johnson & Johnson(JNJ), which is considered a medical device company by Wall Street, as opposed to a drug company, is headquartered in New Brunswick, New Jersey. AbbVie(ABBV) is in North Chicago, Illinois. They also typically have facilities, laboratories and manufacturing plants all over the country and the world.
Biotech companies aren’t nearly as heterogeneous in their locations. Although any large research university can spawn a biotech company and do, the reality in the U.S. is that biotech startups have primarily clustered to the Boston area and the San Francisco Bay area, with additional sites in San Diego.
That isn’t to say that there aren’t biotech companies all over the country. There are. Aeglea, mentioned above, is one of a few located in New Orleans. BioPharmGuy lists 85 biotech companies in Michigan, and most of them are in Ann Arbor, home of the University of Michigan, or in surrounding suburbs. BioPharmGuy lists about 193 in Pennsylvania, although many of those listed are offices and facilities of larger pharma companies such as Johnson & Johnson, Olympus(OCPNF), GlaxoSmithKline(GSK), or clinical research organizations (CROs) like Charles River Laboratories(CRL).
However, many biotech companies employ a handful (or less) of people, whereas a pharmaceutical company often hires thousands.
It’s also worth noting that MassBio indicated in 2015 that there were more than 900 biopharma, medical device and diagnostic companies in Massachusetts. And BioPharmGuy lists more than 830 biotech companies in the Bay Area and Northern California alone.
An advantage to being in an area with a large biotech presence should be obvious—if the company goes under or you choose to work for a different company, you’re more likely to be able to find work without having to relocate to a different state, city or region.
Your Role and Time
Small biotech companies often require scientists to be Jacks-of-all-trades. There’s just too much to be done for a single person, especially in a company with only a few people, to focus too narrowly. Pharmaceutical company scientists, on the other hand, tend to be highly focused on specific duties and roles.
One is not necessarily better than the other. David Lowe, co-founder, president and chief executive officer of Aeglea Biotherapeutics, told BioSpace, “I think there’s definitely pros and cons on both sides. The advantage for new grads coming into the industry, targeting biotech is really the opportunity to work in a dynamic organization that’s trying to develop something that’s new and novel. Being there is really to be part of directly contributing and possibly taking a position, seeing on a day-to-day basis how your efforts can impact the organization. It’s easy to get lost and be a very small cog in an enormous machine in pharma.”
In addition, Clifford Mintz, writing for the American Association of Pharmaceutical Scientists (AAPS), notes that pharma/industry jobs tend to be less stressful and have a fairly regular five-day, 40-hour work week. Biotech companies are more inclined, with a shorter financial runway and the clock constantly ticking, to have longer hours and days.
Mintz writes, “Work hours at large companies tend to be five days a week (9-5) whereas those at smaller companies are likely to be variable and possibly longer. Promotion is usually based on meeting annual goals (set by supervisors) and an employee’s overall contribution to the company’s financial bottom line.”
The vision of big pharma as conservative and stodgy is probably fairly realistic. Some of that is simply that the larger a company gets, the more conservative it tends to become in terms of work culture. Biotech companies, especially startups in the San Francisco Bay Area are very much in the Silicon Valley mode of corporate culture—edgy, hip, individual-focused.
There’s undoubtedly a great deal of variation in this regard, but being aware of company culture and how it’s likely to vary from small startups to well-established pharma companies can go a long way towards finding which environment suits you best.
In an article written by Christopher Henney, then the chief executive officer of Dendreon Corp.(DNDN) for Bioentrepreneur, he said, “Not every nonscientist CEO is of the ‘white shirt, red tie’ school, but most are perturbed by the absence of ties in the laboratory. This sometimes manifests itself in a ‘the bankers are coming’ memo that politely requests ties and skirts on that day. The more subtle memo seeking the same end asks, ‘What time do people in the lab go for lunch?’ One type of biotechnology company evolves from such CEOs is the ‘ties-are-for-managers’ company. I know of no successful company that espouses this philosophy.”
Pay will vary a great deal from company to company, but how does it vary between biotechs and pharma? The American Association of Pharmaceutical Scientists’ 2015 Salary Survey found that the mean base annual salary for full-time employees in the U.S. in biotechnology, was $130,200, with a total compensation mean of $168,900.
There is significantly more granularity in the survey, but it indicates that for pharmaceutical analytical development jobs, the mean base annual salary is $134,200 with a mean total compensation of $164,100, and for pharmaceutical development (dosage from design), the mean base annual salary was $138,500 and the mean total compensation was $167,300.
That suggests, at least, that salaries are fairly similar.
But what about the stock options at a biotech company? If I’m given a piece of the company and it develops a blockbuster drug, won’t I become a millionaire?
But What About Those Stock Options?
An in-depth discussion of this topic is outside the scope of this article. The quick answer is: maybe. Luke Timmerman, writing for Xconomy provides some insight into this topic in his 2013 article, “Don’t Be Naïve: 7 Things to Know Before Taking a Biotech Startup Job.” Much of the article revolves around getting to know the senior management team, the staff, evaluating the risk involved, and your role in the company.
But one of his points is dubbed “Stock options are nice to have, but keep them in perspective.” A few points to ponder are: It’s a gamble, because biotech startups fail, in which case those stock options are worth zip.
But he goes on to write, “What fewer people realize is that startups can be successful, and still not provide stock rewards to the people who slaved away all those nights and weekends to make it a success.”
In short, there’s a difference between the types of preferred shares that the venture capitalists hold and the common shares typically held by founders and employees. “There’s a whole confidential world of liquidation preferences,” Timmerman says, “and things like participating payout clauses, that are quite relevant to the financial futures of startup employees, and yet hardly anybody knows anything about.”
The bottom line being, if you’re offered shares in the company, do some research to completely understand what you’re being offered. Stock options are complex and you might not be receiving what you think you are.
Biotechnology Versus Big Pharma
There are undoubtedly other factors, including simply: What do you want to accomplish with your career?
One area that should be mentioned is that as a scientist, for the most part your role at a biotech company is likely to remain as a scientist, as opposed to a manager, unless the company grows quickly. The executives of biotech companies are often venture capitalists (VCs). Often those VCs have scientific backgrounds. In pharma, the possibility of a scientist heading a department, division, business unit, and eventually moving up into executive management—if that’s your ambition—is possibly greater than it is at a biotech company.
Numerous people have had highly successful and satisfying careers in either biotech companies or pharmaceutical companies, but going in with your eyes open can be beneficial. What’s right for you?