Are you curious about investing in biotechnology but also intimidated by the choices?
It’s one of the industries of the future and one that you need to focus on.
Biotech refers to technology companies that work to improve our biological conditions. These include improving our overall health and addressing medical issues.
For beginner investors, one of the biggest challenges is figuring out what makes a company successful. You need to focus on the criteria for a successful company.
Here’s what you need to know about biotech investing:
What’s on Everyone’s Mind?
Your first step is to study the recent trends in the biotechnology sphere.
For example, once the COVID-19 outbreak became a global issue there was immediate research on how to cure the virus through a vaccine.
As such, those investors who put their money in companies such as Pfizer and Moderna made huge returns. These were among the first companies to develop a vaccine and their investors profited from this achievement.
Take a moment to consider this: which are the current companies that are addressing an issue in biotechnology?
For example, which companies are researching cancer treatment or a cure for AIDS?
These are the companies you need to consider investing in. It’s also wise to keep an eye on the industry experts.
Experts such as Kenneth Chien will provide insights on the trends in the biotechnology sphere.
Does It Have a Support System?
You want to look for companies that operate under a stable support system. For example, do these companies have the backing of larger corporations?
As a general rule, the more corporations that back the company the greater chances it has to succeed with its services.
For example, how many holding companies own stake in the biotech company? How many prominent investors hold a significant stake in the company?
Before you support the company, you have to see if prominent investors/corporations have lent their support.
Ready to Launch?
You have to keep an eye on a launch date from a biotech company. For example, let’s suppose there’s a company that has produced a new medical device.
They might promote the benefits of this medical device for patients. However, they haven’t stated their launch date for the device. They might still be awaiting FDA approval.
This is perhaps a company that you want to hold off on. The waiting period could go on for months or years. As such, you can expect the company to stagnate or fail.
But if you opt for a company that is ready to launch, you can anticipate their stocks to skyrocket.
For example, let’s suppose the same company has received FDA approval for the medical device. Let’s also suppose they have a launch date of 1 month.
This might be a great time to invest in that biotech company. There’s never a guarantee, but one can bet that the stock will soar in 1 month.
Is the Company Diversified?
This is a general rule with investing in any type of company. You have to apply this same rule to any biotech company.
While Pfizer has gained prominence for the COVID-19 vaccine, it’s a trusted company due to years of experience with other products.
It’s not wise to invest in a biotech company that only has one focus. These companies have a fragile trajectory. You have to consider that their one focus will fail.
Even if it’s a smaller company, you shouldn’t risk your investment in a company that isn’t diversified.
You also want to make sure that the company has succeeded in its other endeavors.
If the first 10 medical devices haven’t sold, you can’t have faith that the 11th one will do well either!
Who Runs the Show?
The next step is to look at the management of the biotech company. For example, you want to research the scientists working at the company.
In an ideal situation, these scientists will be experts in their field. These are senior-level scientists who have already showcased excellence in their field of science.
You also need to look at who runs the business operations of the company. You need someone who has credentials for running a business. They must also have a background in science.
One should never invest in a biotech company run by an expert entrepreneur with no knowledge of science.
Likewise, a brilliant scientist with no proven business track record is also a red flag!
Research the Technology
Once you’ve shortlisted biotech companies, you’ve got to research their technology.
For example, is the technology used for their products/services recognized within the industry? Is the company using a new technology that most industries aren’t familiar with?
With the former option, you know there’s a level of stability within the company. With the latter option, your risk is far greater.
It’s never ideal to invest in a biotech company that uses new technology. The one exception is if it’s an established and profitable company.
Never Put Your Eggs in One Basket
The final step is to find a few biotech companies to invest in. You’re likely familiar with the recommendation to ‘diversify your portfolio.’
This means that you want to make sure you invest in biotech companies that have different goals.
For example, you would profit had you invested in a company focused on creating a COVID-19 vaccine.
But you’ll also profit if you have a stake in a company focused on cancer research.
This brings us back to our first step of researching the trends. You want to always put your money into companies following these trends.
Start Biotech Investing Today
Now that you’ve read this guide on biotech investing, you can start your investment journey today!
As this is a growing industry, the opportunities are endless. However, you want to make sure you assess your decisions carefully.
Take your time to research the trends within biotech. Create a shortlist of potential companies and then assess them based on our criteria. This will help you determine where to put your money.
Please share this guide with anyone interested in biotech investing. You can find more financial tips on our website.