The new study, by Frost and Sullivan particularly highlights the effect can be particularly crippling to biotechnology companies also, particularly newer, less established ones.
The theory is that the biotechnology sector will suffer more than pharmaceuticals, as it does not have many established companies that can absorb the burden of failed ventures.
The discovery gains special significance as both sectors are increasingly merging their resources, combining technologies and know-how to create partnerships that can spread the cost, and reduce the risk of any drug development venture.
Companies such as Amgen, Chiron, Genentech, and Genzyme are expected to continue leading the market, having entered into licensing deals and implement risk management solutions with most of big pharma. The report commented that high returns from biotechnology stocks are likely to sustain investor interest in the industry and maintain focus on new R&D projects.
"The partnerships between big pharma and biotech companies are likely to be the trendsetters in the industry," said Barath Shankar S, Frost & Sullivan research analyst.
"With the technical expertise of biotechnology companies and the marketing skills of big pharmas, the collaborations are expected to be very successful," he added.
The report details the strategic moves and plans that have seen the top ten biotechnology companies in the US have 186 products in R&D. Of these, nearly 20 per cent are in phase III of development. These products are likely to have substantial impact on market growth in the next two to three years.
Despite the recent handful of drug recalls and safety concerns, which wiped out billion's of dollars of market capital, the biotechnology industry is optimistic about market growth. Since the fundamentals of product development are sound, the companies are confident of overcoming these setbacks and accelerating growth.
The report commended the risk-taking nature of the biotechnology industry and pointed to the statistic, which states that from 1994 to 2005, the top ten companies have returned a figure of close to 27 per cent on stock price appreciation. In the next year, this number was expected to reach 24-25 per cent.
"Biogen IDEC, which has delivered the highest returns of 43.5 per cent from 1994 to 2005, has a risk rating of 'moderate/high'," said Shankar.
"Similarly, Gilead which has returned 29.5 per cent, much above the industry average, has the highest risk rating of 'very risky'," he added.