Years ago, the term biotech basically referred to a genetics-focused company. But in the last decade or two, the term has come to refer to any smaller drug development company without its own commercialization and manufacturing capabilities, essentially those companies that are too small and focused to be considered pharma. There are thousands of biotech companies at any one moment in time, and you’re not likely to have heard of the vast majority of them.
In contrast, very large pharmaceutical companies (aka big pharma) are typically massive global organizations with huge manufacturing and commercial capabilities. Many of them are household names that have been around for a hundred years or more (for example, Johnson & Johnson, Merck, Pfizer, or GlaxoSmithKline). There are only a couple dozen of these companies.
Biotech and big pharma are both general terms that describe two ends of a spectrum. There are also large biotech and small pharmaceutical companies.
New biotech companies are created all the time, often built around ideas that originate in academia. With a relatively small team (many employ fewer than five people in the beginning!), they secure funding and begin developing a potential drug through discovery and the first few animal experiments or maybe even the first clinical (human) studies. Then, if their scientific hypothesis is sound and there seems to be market demand, a larger pharmaceutical company will typically buy the promising biotech company and/or its asset(s), complete the series of wildly expensive clinical trials that the original company is rarely able to afford, win FDA approval and placement on insurance formularies, and bring the drug to the commercial market. It’s very rare for a biotech company to take its product from concept all the way to the market by itself because of the massive amount of resources required to pay for late-stage clinical trials, manufacturing, regulatory approval, payer interactions, and commercialization.
This isn’t something to lament — when large pharma companies buy up small biotech companies, the ecosystem is functioning as it should. It would be wildly inefficient to force every tiny biotech company to build out the massive global manufacturing, commercial, and regulatory teams required to bring a drug to market across the world when pharmas already have well-developed organizations that specialize in that kind of work. You can find more on that topic here [OPTIONAL].
When a biotech company is acquired, its high-potential asset(s) get handed over to a larger pharma specializing in leaping the expensive hurdles required to get the drug past the finish line, and the original biotech’s discovery-oriented scientists are freed up to work on the next most interesting problem, and the development cycle continues. And where do the large pharma companies get the money to buy up small biotechs? You guessed it — this money comes from profits made from selling their existing drugs.
You may also come across the term biopharma. Biopharma is an umbrella term that encompasses both biotech and pharma. Biotech and pharma can share goals (like bringing therapies to patients), but the types of companies that live in each space are fundamentally different from one other, so be wary when you see articles or legislation trying to paint them with the same brush. For example, when you hear a senator rail against “biopharma’s profits,” they almost certainly can’t be talking about biotech companies — those companies don’t even make profits because they aren’t selling a product yet. They’re using investor, foundation, and/or grant money to research whether transformative scientific ideas have the potential to become safe and efficacious drugs in humans. They don’t *have* anything to sell to anyone.