Investing In The Biotech Sector

How would you like to invest in a sector comprised of companies that have an 85 to 95% failure rate on everything they attempt to invent, their success or failure hinges on a government agency that has more mood swings than "that guy" at work and there's a significant chance that if you pick the wrong the company, you could see 90% or more of your investment disappear in less than 24 hours?

SEE: A Primer On The Biotech Sector

How's that for a glowing endorsement of the biotech sector of the stock market? If you're an investor in biotech stocks, you know of these realities, but you also know that when one of these companies markets a breakthrough drug, your investment can double over night. Here's what you should know.

More Than Just Drugs
In the popular investing circles, biotech stocks are thought of as companies that treat an illness, but they're bigger than that. Companies like Dendreon and Celgene do develop products to treat illnesses, but biotech also includes the production of genetically engineered seeds for agriculture, biodegradable plastics, biofuels and other industrial uses. However, most investors think of biotech as a high tech, 21st century version of the older pharmaceutical companies.

Traditional medical research has concentrated on using relatively simple molecules found by trial and error as a way to treat illnesses. Biotech companies may engineer or use more complicated methods, such as modifying proteins that attempt to disrupt the disease process. The traditional way of scouring the globe for simple molecules has given way to engineering living cells for the benefit of the patient.

The Biggest Enemy to Biotech
The biggest enemy, according to biotech analysts, is the Food and Drug Administration (FDA). Once a drug goes through a series of trials, the biotech company submits an application for approval. Those with experience in dealing with the FDA speak of an organization that may be very conservative during some periods and very liberal during others. The FDA may require further testing during its conservative periods, but may not do much more than rubber stamp a drug when it's in a more liberal mindset. It may also be more willing to approve applications for drugs that treat diseases without a cure or acceptable treatments.

The New Landscape
The business of pharmaceutical companies is changing. Companies that used to employ teams of scientists to find the next big blockbuster drugs are transitioning to the business of purchasing smaller research companies, or the drugs they produce. For instance, in 2006, large pharmaceutical companies spent roughly $17 billion on more than 250 biotech firms. By purchasing companies already in the process of developing new treatments, the pharmaceutical companies can focus their finances towards other endeavors, such as marketing. They take on only the risk that the drugs fail in the market, instead of the 85 to 95% risk that the drug never reaches the market at all.

Positive Legislation
Biotech watchers are applauding the recent passage of the Faster Access to Specialized Treatment or FAST Act, which speeds up the process by which drugs for diseases without a cure come to market. This legislation is designed to speed up the development of personalized treatments for patients suffering from life threatening and serious diseases, and may provide an incentive to biotech companies to invest even more in research and development, if they know that they can potentially recoup their investment at a faster pace.

The Bottom Line
Biotech companies are difficult to research because of their relatively small size. Since they often do not have any cash flow, and investors are provided little indication of the status of their research, big announcements frequently come by surprise. Investing in these stocks can be a long waiting game; it can pay off big or the investor may lose most of their position.

For the retail investor with little time to research the sector, investing in a biotech exchange-traded fund may be the safest way to commit funds to the sector, but for those with a passion for due diligence, the sector can prove very profitable.



More From Investopedia

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • AP NewsBreak: Ritz's office backed app deal without bidding
    AP NewsBreak: Ritz's office backed app deal without bidding Associated Press - 8 minutes ago

    Indiana schools Superintendent Glenda Ritz's office approved a lucrative technology contract that state government officials said should have been subject to competitive bid, benefiting a company that ... … More »

  • Shareholder committees could curb UK bosses' pay bonanza - report
    Shareholder committees could curb UK bosses' pay bonanza - report Reuters - 17 minutes ago

    British public companies should be required to create shareholder committees responsible for proposing executive pay, to help constrain the spiralling salaries of top bosses, said a report published on Thursday. The report, by lawmaker Chris Philp … More »

  • Sunovion Pharma to buy Canada's Cynapsus for $624 million Reuters - 43 minutes ago

    The announced purchase price of $40.50 per share in cash was a 120.5 percent premium over that closing price. Through the deal, Sunovion will acquire Cynapsus’ drug candidate, APL-130277, which is currently in its phase three clinical trial stage. … More »

  • Salesforce third-quarter revenue forecast misses, shares fall
    Salesforce third-quarter revenue forecast misses, shares fall Reuters - 56 minutes ago

    For the third quarter, Salesforce said it expected an adjusted profit of 20-21 cents per share and revenue of $2.11 billion-$2.12 billion. Analysts on average were expecting an adjusted profit of 24 cents per share on revenue of $2.13 billion, … More »

  • EU VP tells British to 'get their act together'
    EU VP tells British to 'get their act together' AFP News - 1 hour 9 minutes ago

    Britain's political leaders should "get their act together" and tell the EU what they want from their divorce, European Commission Vice President Frans Timmermans said in an interview with AFP. Timmermans, the Dutch right-hand man to commission … More »

  • Dollar weakens on contrasting economic data AFP - 1 hour 43 minutes ago

    The dollar weakened against the euro and the pound on Wednesday as dueling data on both sides of the Atlantic offered a mixed picture of economic conditions. Towards 2100 GMT, the euro was at $1.1156, ... … More »

  • Oil Slump Sparks Stock Losses as S&P 500 Wipes Out August Gains Bloomberg - 1 hour 47 minutes ago

    Energy share sled declines as New York-traded crude fell below $45 a barrel on data showing U.S. stockpiles climbed more than analysts had projected last week. The S&P 500 ended the month down 0.1 percent, ending its longest run of gains in two … More »

  • Business Highlights Associated Press - 2 hours 3 minutes ago

    ___ Historic commercial flight from US lands in Cuba The first commercial flight between the United States and Cuba in more than a half century landed Wednesday, re-establishing regular air service severed ... … More »

  • France's Orange says in talks with Iran's MCI on potential cooperation
    France's Orange says in talks with Iran's MCI on potential cooperation Reuters - 2 hours 4 minutes ago

    French telecoms operator Orange is in negotiations with Mobile Telecommunication Company of Iran (MCI), the country's largest mobile operator, "regarding a number of areas of potential cooperation and business topics," a spokesman said. The … More »

  • BP OKs Whiting refinery Tier 3 hydrotreater Reuters - 2 hours 8 minutes ago

    BP Plc's (BP.L) 413,500 barrel per day (bpd) Whiting, Indiana refinery has received corporate approval to build a new hydrotreater to meet Tier 3 gasoline standards that will be required by the U.S. Environmental Protection Agency, according to a … More »

  • WeChat Chatter Fuels China Money Exodus Into Hong Kong Policies Bloomberg - 2 hours 28 minutes ago

    Forget about restrictions imposed by mainland regulators trying to halt the exodus of billions of yuan out of China and into Hong Kong policy purchases. For Hong Kong part-time agent Wen, who declined to give her first name, it’s been that easy to … More »

  • Italy and Germany signal tougher EU stance on migrants
    Italy and Germany signal tougher EU stance on migrants AFP News - 2 hours 28 minutes ago

    Italian Prime Minister Matteo Renzi and German Chancellor Angela Merkel agreed Wednesday to step up efforts to send migrants with no right to asylum in Europe back to their homelands. "All of us in Europe must work for the repatriation of those who … More »

  • Energy drags Wall St lower; S&P down slightly in August
    Energy drags Wall St lower; S&P down slightly in August Reuters - 2 hours 30 minutes ago

    Stocks ended lower on Wall Street on Wednesday, as energy shares tracked oil prices lower, and the S&P posted a loss for August, the first negative month for the benchmark index since February. The Nasdaq gained 1 percent in August and the S&P shed … More »

  • How the Dow Jones industrial average fared on Wednesday Associated Press - 2 hours 34 minutes ago

    U.S. stocks took small losses Wednesday as energy companies fell with the price of oil and chemical and materials companies traded lower. That pulled the market lower for August, ending a five-month winning ... … More »

  • H&R Block and Brown-Forman tumble, Chico's FAS rises Associated Press - 2 hours 34 minutes ago

    Stocks that moved substantially or traded heavily on Wednesday: H&R Block Inc., down $2.54 to $21.66 The tax preparer reported a bigger first-quarter loss and less revenue than analysts expected. Brown-Forman ... … More »

  • US stocks fall, dragged down by sinking oil prices AFP - 2 hours 47 minutes ago

    US stocks fell modestly Wednesday, pulled down by sinking oil prices, closing out a sluggish August which saw the S&P 500 score its first monthly loss since February. At the close the Dow Jones Industrial ... … More »

  • Infoblox reports 4Q loss Associated Press - 2 hours 51 minutes ago

    On a per-share basis, the Santa Clara, California-based company said it had a loss of 18 cents. Earnings, adjusted for one-time gains and costs, came to 8 cents per share. The results exceeded Wall Street ... … More »

  • Cloud management company Box's quarterly revenue jumps 30 percent Reuters - 3 hours ago

    (Reuters) - Cloud management company Box Inc's (BOX.N) quarterly revenue jumped 30.3 percent as the company added customers. Its net loss narrowed to $38.1 million, or 30 cents per share, in the second ... … More »

  • Salesforce.com tops Street 2Q forecasts Associated Press - 3 hours ago

    The San Francisco-based company said it had profit of 33 cents per share. Earnings, adjusted for one-time gains and costs, were 24 cents per share. The results beat Wall Street expectations. The average ... … More »

  • Shoe Carnival posts 2Q profit Associated Press - 3 hours ago

    On a per-share basis, the Evansville, Indiana-based company said it had profit of 22 cents. The footwear retailer posted revenue of $231.9 million in the period. Shoe Carnival expects full-year earnings ... … More »

  • Markets Right Now: Stocks edge lower on Wall Street Associated Press - 3 hours ago

    The latest on developments in global financial markets (all times local): 4:00 p.m. Stocks are closing out their first losing month since February as a quiet summer continues on Wall Street. A thin batch ... … More »

  • Ireland says Apple CEO spoke to PM, committed to stay
    Ireland says Apple CEO spoke to PM, committed to stay Reuters - 3 hours ago

    Irish Prime Minister Enda Kenny spoke to Apple (AAPL.O) chief executive Tim Cook ahead of the European Union's announcement of a 13 billion euro (11.04 billion pounds) back tax bill and the U.S. firm committed to remain in Ireland, Kenny's office … More »

  • US stocks slip as lower oil prices sink energy companies
    US stocks slip as lower oil prices sink energy companies Associated Press - 3 hours ago

    U.S. stocks are down slightly in afternoon trading Wednesday as energy companies fall with the price of oil and makers of chemicals and other materials take losses. Stocks are on track for their first ... … More »

  • Feds: Company tied to polygamous group used child labor Associated Press - 3 hours ago

    Federal labor lawyers have filed another child labor case against a Utah-based company tied to a polygamous group alleging underage laborers were put to work for long hours for little pay in dangerous ... … More »

  • Grain lower, livestock mixed Associated Press - 3 hours ago

    Grain futures were lower Wednesday on the Chicago Board of Trade. Wheat for Sept. fell 2.25 cents at $3.61 a bushel; Sept. corn lost 2.50 cents to 3.015 a bushel; Sept. oats was off .75 cent at $1.61 a ... … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.119-0.004-3.25%
    N21.SI
    0.36+0.01+1.41%
    E5H.SI
    0.9950.0000.00%
    Y92.SI
    4.02-0.08-1.95%
    Z74.SI
    0.22-0.02-6.38%
    5ME.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.285+0.035+14.00%
    5SY.SI
    0.60+0.07+13.21%
    BKB.SI
    0.23+0.03+12.20%
    I06.SI
    0.50+0.05+11.11%
    BFK.SI
    0.67+0.05+8.06%
    5CP.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.305-0.060-16.44%
    BQO.SI
    0.105-0.020-16.00%
    578.SI
    0.181-0.019-9.50%
    P36.SI
    0.21-0.02-6.67%
    1A4.SI
    0.22-0.02-6.38%
    5ME.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3618-0.0004-0.03%
    USDSGD=X
    1.5200+0.0004+0.03%
    EURSGD=X
    1.7897+0.0001+0.01%
    GBPSGD=X
    75.8200+0.031+0.04%
    SGDJPY=X
    5.6948+0.0037+0.07%
    SGDHKD=X
    2.98960.000.00%
    SGDMYR=X
    9,769.7354+2.2061+0.02%
    SGDIDR=X
    4.9013+0.0011+0.02%
    SGDCNY=X
    1.0240+0.0004+0.04%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,313.30+1.90+0.14%
    GCZ16.CMX
    18.64+0.01+0.07%
    SIU16.CMX
    90.17-1.67-1.82%
    ^XAU
    2.070.00+0.19%
    HGU16.CMX
    44.86+0.16+0.36%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.180.00
    ^FVX
    1.570.00
    ^TNX
    2.230.00
    ^TYX