Biotech investing, simple first rules
I get calls and e-mails re where to begin, whether one should invest, what should be bought and I state
investing in this sector has a high degree of risk.
Understand the sector by reading and garnering/surfing the web re the industry could lead you to individual companies.
The biotech sector can be volatile day-to-day but can be expected to show the best returns over the next few years.
- Research the different therapeutic areas and the companies involved,
- Check different blogs and independent research reviews but don’t put much credence in message boards and try to qualify information from those publishing “pundits” who percentage-wise might have proven track records,
- Define whether a therapeutic market exists for any compound in development and its clinical utility or use,
- Focus on biotech companies that have a proven track record of out-licensing and partnering their development compounds as most have yet to develop FDA approvals,
- Question whether the compound in development is an iteration product that other companies are working on while defining the companies they are comparable (similar),
- Track the compound’s regulatory filings with the FDA and subsequent performance in trials.
- Review the company’s management; has this team experienced getting a drug to market,
- Start participating in/on conference calls and web-based presentations to see if management just doesn’t talk the talk but has solid market and regulatory knowledge,
- Although is no guarantee for future performances, review which institutional or funds (who has invested or recently exited the investment) as history it is a one indicator,
- When the actual investment decision is pending; understand that past performance is no guarantee of future performance; but by updating prior analysis solidifies your investing foundation,
- Track the stock movements, consider diversify your investment portfolio to include multiple therapeutic categories with small, mid and large-cap biotech companies.
The Bottom Line: Understand, the biotech sector usually shows cyclical performance, in one or two therapeutic areas and tends to be very event driven (what happens to one affects other comparable companies one way or another). Note, surprisingly, “BIG biotech is doing better on Wall Street than their smaller counterparts, but they’re also doing better than the broader stock market and will continue to grow. Although they’ve fallen from the record highs posted in August, biotech stocks aren’t as risky as many fear or expensive”, says a report by Barron’s.
