Biotechnology is one of the scariest and most interesting sectors of the stock market. How many other startups 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 reality. Here is what you should know :
According to biotech analysts, the biggest enemy of biotech is the Food and Drug Administration (FDA). Once a new product is developed, it has to go through a series of trials before the company applies for approval. Those who have dealt with the FDA experience an organization that 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 a 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 the business of purchasing smaller research companies or the drugs they produce. We can take examples of large pharmaceutical companies that invested billions of dollars in more than 250 biotech sectors in 2006. These companies purchase 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 of as companies who only treat illness, but there is so much more to that. Some companies work in the agriculture sector, focusing on providing genetically engineered seeds, biofuels, cosmetics, and even 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 that 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 Treatments or FAST Act, which 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 they are present in small sizes. As they don’t have any cash flow, the investors are provided with little information about the status of their research, and 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 researching the sector, investing in a biotech exchange-traded fund is the safest way to commit funds to the sector. Still, for those with a passion for late success, this sector will prove to be very profitable.