CHICAGO — The American biotechnology industry has surpassed pharmaceutical companies for the third straight year as the primary source of new medicines, helping biotech revenue jump nearly 16 percent last year to a record $50.7 billion.

Biotechnology companies still spend considerably less on research than their rivals in the traditional pharmaceutical industry, a report said — about $20 billion a year, compared with more than $60 billion for the established drug giants. But the biotech companies get more results for their money, surpassing pharmaceutical companies for the first time in 2003 in getting novel types of medicines approved by the Food and Drug Administration.

"This is an independent, self-sustaining industry that is growing (at) more than twice the rate of the pharmaceutical industry," said Scott Morrison, a partner at Ernst & Young LLP, the consulting firm that prepared the report released last week. "It is here to stay."

It's no news to the drug giants that their upstart rivals in biotech have lately become the primary source of innovation in U.S. medicine, including treatments for serious ailments such as cancer and heart disease. For years, they have swallowed their pride to buy small biotech companies or sign expensive deals to get access to products.

A prime example is Exubera, the inhaled insulin for which Pfizer Inc., the nation's largest drug company, recently won FDA approval. Hailed as a milestone in the lives of diabetics, Exubera wasn't invented at Pfizer, but by Nektar Therapeutics, a small biotech company in San Carlos, Calif., that stands to benefit handsomely if it succeeds in the marketplace.

"The pharmaceutical sector is clearly looking at biotech as the innovation leader," Morrison said, noting that the dependency runs both ways, with biotech firms needing cash, manufacturing skills and marketing muscle from the big drug companies.

Despite big gains in revenue, the biotech industry still lost money overall last year as it spent heavily to develop new products, the report said.

Pharmaceutical or biotech?

The distinction between pharmaceutical companies and biotechnology companies may elude many Americans, but within the culture of U.S. medicine, it is significant.

Pharmaceutical companies are global industrial giants with roots in the chemical dye manufacturing industry of the late 19th century. Even as they delivered a string of products such as vaccines and antibiotics that transformed life in the 20th century, they grew into huge, unwieldy organizations that were highly dependent on a handful of blockbuster products.

The biotechnology industry was born in the 1970s in the universities around San Francisco Bay, where scientists first learned to slice and dice DNA, the molecule that governs heredity. Starting with an understanding of what's going wrong in cells to cause disease, biotech companies design treatments to counter the problems.