A report by the consulting firm Ernst and Young says that, although huge pharmaceutical firms like Merck and Pfizer pour billions into research, small biotechnology companies are responsible for most of the new drugs approved in the U.S. last year.
Pharmaceutical giants, like Merck and Pfizer, profiting from hundreds of medications and over-the-counter treatments, spend more than $60 billion a year on research and commercials. But smaller biotech firms outstripped the giants in 2005 with 18 new drugs approved for market, out of a total 29.
James Greenwood is president of the Biotechnology Industry Organization. "The little biotech companies are entrepreneurial. They're risk takers, they will go looking for a brand new molecule to cure a disease that's not been tackled before. Big pharmaceutical companies have such huge sales forces, such huge infrastructure, that they have to limit their risk taking. They're always looking for a tweak to an existing drug that enables them to get some great volume of sales."
But spokesmen for the pharmaceuticals say they are taking big risks to research new treatments for widespread and even rare diseases.
Biotech companies, more than 1,000 of them, are using new discoveries in DNA, genetics and cell biology to better understand how the body works in order to combat and prevent disease.
Last year, one biotech firm developed Insulin that's inhaled, not injected. It hits the market soon.
MedImmune, which developed a flu vaccine in a nasal spray, is working on a spray to protect against the deadly strain of avian flu, which officials say could become a pandemic.
EntreMed, outside Washington D.C., is developing a new drug that relies on an understanding of how blood vessels help tumors grow and how cutting the blood supply to tumors can kill them.
But though biotechs are doing groundbreaking work, their finances are precarious. Many are funded, at first, by venture capitalists. Drug development can take up to 10 years. And the industry has lost billions of dollars since the first biotech was founded 30 years ago.
Some of the publicly traded firms have seen their stock prices collapse when clinical trials have failed.
"The biggest challenge for biotech companies these days is the early stage financing," says Greenwood.
One way to get that financing is in partnerships with the pharmaceuticals. Biotech companies say if they can stay afloat, they will bring unique ways to improve health worldwide.