Throughout the COVID-19 pandemic, small and medium-sized enterprises (SMEs) and emerging therapeutic companies (ETCs) have had the spotlight turned on them. Two biotech companies, in particular, attracted great attention: Germany-based BioNTech and U.S.-based Moderna. These two were the first to develop and market safe and effective COVID-19 vaccines available to large parts of the world’s population. Typically, both companies have not been profitable yet, but their big financial breakthrough is expected to come in 2021. However, the rising market value of the companies – visible in their share prices – is already a fact. Currently, Moderna is listed as one of the leading biopharma companies worldwide based on market capitalization.
A question of definition
There is no conclusive definition for a small and medium-sized biotech company. In general, the size is based on the number of employees or level of sales. The maximum employee count usually ranges from fewer than 100 to fewer than 1,000. The upper limit for sales is generally set at five billion U.S. dollars but can be as high as 500 million U.S. dollars. Some sources also differentiate between SMEs and ETCs, but most include the latter within the first group of companies.
The breeding ground for innovation
The emerging importance of small and medium-sized enterprises has been a particularly prominent development over the last two decades. One of the major trends among big pharma companies is that research and development processes are no longer fully integrated. Instead, external R&D actors are utilized to stem the constant pressure for new products caused by the impact of patent expirations on revenue. This is where SMEs and ETCs come in, representing a huge pool of innovation and new technologies. Since 2009, for example, SMEs have discovered most of the drugs approved by the U.S. Food and Drug Administration. Their big advantages are flexibility and adaptability, an adventurous mentality, and a less rigid company structure. The decline of inherent innovation is driving large companies to form alliances and collaborations with biotech SMEs or ETCs. Another favored option is to acquire SMEs or ETCs, including their knowledge and innovative products with market potential.
How Pfizer and BioNTech did it
A great example of an alliance between an innovative SME and a large company is the development of the Pfizer-BioNTech COVID-19 vaccine. BioNTech discovered the vaccine by utilizing its innovation and conducting the research, while Pfizer had the means to develop the new product and produce the high number of COVID-19 vaccine doses ordered worldwide. Big companies often have an established clinical trial network, and this was also crucial in the Pfizer-BioNTech collaboration. In the end, the combination of creativity and innovation on one side and experience and well-developed infrastructure on the other proved to be very fruitful. Forecasted sales of COVID-19 vaccines worldwide show that the Pfizer-BioNTech jab, marketed as Comirnaty, is set to reach record-breaking figures for a biopharmaceutical product.
Market and outlook are promising
The landscape for smaller and emerging companies looks promising. In 2020, biotech IPOs raised a record-high 11 billion U.S. dollars combined in the U.S. and Europe. Venture capital remained on a high level at over 18 billion U.S. dollars. Financing of U.S. biotech companies saw an unprecedented 90 percent growth compared with 2019, totaling nearly 100 billion U.S. dollars in 2020. At the same time, innovative biotech drugs are expected to generate an increasing share of total global pharmaceutical sales, potentially reaching 37 percent by 2026. With a myriad of small and medium-sized enterprises involved in the latest bioscience techniques, such as the revolutionizing gene-editing technique CRISPR, their future importance is destined to increase.
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