Biotech Stocks: Things That You Need to Know

What are Biotech Stocks?

Biotech stocks are the stocks of publicly-traded companies in the biotechnology industry. Biotech companies focus on the research and development of medicine and therapies with the use of technology. Generally, biotechnology stocks also refer to the:

• use of technology in the production of chemicals for agriculture
• evolution of new species of disease
• climate change
• growth of pest-resistant crops
• development of medical devices

Some example of biotech stocks includes:

• Johnson & Johnson
• Gilead Sciences
• AMGEN
• Biogen
• Regeneron

The Benefits of Investing in Biotech Stocks

Biotech companies use technology in developing products that improve the health and lives of people. They produce pharmaceutical drugs and medical tools that can treat diseases and other medical conditions. Biotech stocks offer several investment benefits. Some important advantages that they provide include:

1. Potential massive gains

The stock price of biotech companies may skyrocket if it successfully launches a new product in the market. Since there is still no cure for the coronavirus, biotech companies continue to develop a vaccine for COVID-19. The successful company will earn massive profits as well as its investors. 

1. Increasing demand for drugs and vaccines

The population continues to age as time passes by. With the aging population, the demand for pharmaceutical medicines will increase. People will eventually look for new products and development to improve their lives and health. Accordingly, the number of the older population will double in the United States by the year 2060.

1. A better understanding of medicine

Investing in biotech stocks will give investors a wider range of knowledge about medicines. Of course, a wise investor will study and learn the subject before putting their money in it.

The Drawbacks of Investing in Biotech Stocks

When it comes to investing in biotech stocks, some disadvantages may still exist. Understanding these drawbacks will help the investors to make a sound decision. Generally, biotech stocks have four disadvantages that need to be taken into consideration before investing in:

1. Clinical failure

Clinical phases are the most crucial part of developing a new product. The results are highly unpredictable, thus, manifesting huge investment risks. Undesirable outcomes can affect  investors if a biotech company fails a clinical trial.

1. Commercial failure

A biotech company can get the interest of many investors. But with the nature of the biotechnology sector, failure can still happen. Successful clinical phases do not guarantee equal success in the market and still need to go through commercialization. Failure in commercialization will have an impact on the stock price of the biotech company.

1. Requires plenty of time

Accordingly, ten years is the average length of time for a new drug to complete all the stages. From the research to the development stage of the product, errors can happen in between these phases. Additionally, the product should undergo approval from regulators before commencing in the market. If rejected, it can delay its potential returns to the company and investors.

1. Poor financial foundation

Biotech companies that are still at the early stage of clinical trials and approvals cannot produce revenues. Generally, they rely on the investments of the public to secure their finances.

The Five Stages of a Biotech Company

For investors to make smart investment decisions, understanding the stages of biotech companies is vital. New products that successfully passed essential phases speak potential gains in the market. Here are the five clinical stages of biotech companies:

1. Research and discovery stage

Biotech companies carry out plans at the research stage. It is the riskiest because there’s no product to offer to the market. Investors are not likely to buy stocks in biotech companies. Additionally, it’s also difficult for them to enlist on major stock exchanges. The research phase is very crucial as it may not always bring good results or a viable product.

1. Pre-clinical stage

Biotech companies reaching this stage had achieved the early phases of research. They can proceed to the development of the product by going through clinical trials. Some red flags that investors often consider at this stage are the pre-clinical failure and rejected regulatory requirements.

1. Early clinical stage

There is already a tangible product at this stage that the biotech companies want to launch in the market. Approval from the regulatory authorities is also ready for experimental testing in humans. However, two clinical phases should undergo before proceeding to the next stage:

• Safety of drugs on humans
• The efficiency of the drugs

1. Late clinical stage

Biotech companies focus on the validation of earlier clinical studies at this point. The product should be eligible for the approval of the regulatory authorities. Risks involved at this stage include clinical failure and intensive capital requirement.

1. Commercial stage biotech stocks

Biotech companies will hire a sales force to introduce the product to the market. Consumer campaigns are most likely to develop at this stage. However, commercial failure can still happen if the competitor has better performance. 

Biotech Stocks Today

Several stocks plummeted drastically due to the outbreak of coronavirus. But on a positive note, the pandemic has opened an opportunity for the biotechnology industry. Major innovations came to the surface in the fight against the coronavirus. Research and development in biotechnology emerged, driving biotech stocks to soar higher in just a matter of months. Many investors believe that it is a great chance to invest in biotech stocks now.

Biotech companies can provide promising innovations, encouraging most investors to find the best biotech stocks to buy. Several companies in this sector are now competing to be the best. According to YCharts, the top three biotech stocks to look forward to in 2021 are:

• BioDelivery Sciences International Inc. (BDSI)
• Biomarin Pharmaceutical Inc. (BMRN)
• Vertex Pharmaceuticals Inc. (VRTX)

Investing in these companies requires patience. They may give massive profits to investors, but they also hold huge investment risks. Learning how to invest in biotech stocks wisely is a vital process to achieve profitable results.

Sarah Bansil – the founder of Pera Diaries, a blog that focuses on personal finance, business, and investment.