5 facts you must know before you invest in biotech sector
Biotechnology is one of the scariest and most interesting sector of the stock market. How many other startups literally focus on saving lives? If you are thinking of investing in one,you must consider the failure rates which is pretty high as compared to others but you might also reap unlimited financial benefit. If you are an investor in biotech stocks, you are familiar with the reality. Here is what you should know :
According to biotech analysts,the biggest enemy of biotech is Food and Drug Administration (FDA). Once a new product is developed it has to go through series of trials before the company submits an application for approval.Those who have dealt with FDA experience an organization which might either be very conservative or very liberal. They might even ask for further testing during its conservative periods, but might approve easily when there is more liberal mindset.
2. The New Viewpoint
The business of pharmaceutical companies changing. Companies who used to hire teams of researchers for finding noble drugs are transitioning to business of purchasing smaller research companies, or the drugs they produce. We can take example of a large pharmaceutical companies who invested billion of dollar in more than 250 biotech sector in 2006. These companies purchase the smaller companies who are already in the process of developing new treatments. They focus on marketing the drug.The only risk they take is that the drugs might fail in the market instead of the 80 to 90% risk that the drug never reaches the market at all.
3. It is More than just Drugs
Biotech companies are thought as companies who only treat illness but there is so much more to that. There are companies who work in agriculture sector focusing on providing genetically engineered seeds, biofuels,cosmetics and even on biodegradable plastics. But in the investing sector biotech is thought to be a high tech version of pharmaceutical companies.
Biotech companies engineer or use more complex methods like modifying proteins which attempt to disrupt the disease process rather than focusing on traditional methods of treating it .
4. The Legislation
Biotech watchers are applauding the recent passage of the Faster Access to Specialized Treatment or FAST Act, that speeds up the process by which drugs for diseases without a cure come to market. This legislation is designed for speeding up the development of personalized treatments for patients suffering from life threatening and serious diseases, and might be a motivating factor for investing even more in research and development, if they know that they can potentially gain their investment at a faster pace.
5. The Bottom Line
Biotech companies are difficult to research because are present in small size. As they dont have any cash flow, the investors are provided with little information of the status of their research, huge announcements usually come by surprise. Investing in these stocks might be a long waiting game. This can pay off big or the investor might lose most of their position.
For investors who spend less time to research the sector, invest in a biotech exchange-traded fund which is the safest way to commit funds to the sector, but for those with a passion for late success, this sector will prove to be very profitable.