Beat And Battered

I spent the last post talking about stable biotech investments. The majority of these investments are in the pharmaceutical sector. In general, stable biotech investments are few and far between, as biotech investing is seen as one of the more risky investment strategies available. Fact is, many biotech firms fail: they fall quickly and fall hard. The flipside is that there is also a huge potential in biotech investment, but if you don’t have a fallback plan with other types of investments, don’t be surprised if you lose a mint.

What makes biotechnology such a risky investment is that the investor has to know how to read scientific reports. It’s not enough to read sales reports – for new biotech opportunities, these may not even be available. The trick is to not get too excited too quickly when you see that a drug or scientific discovery has passed a hurdle, such as a successful clinical trial. It can take the talents of statistician to understand a clinical trial: how many people are represented in the trial, what age, what gender, etc. Even a good sample size does not necessarily guarantee that a product is going to sell well or even work effectively.

If the stock market falls overall, you can expect biotech to fall even lower: it’s just that volatile. Also, it’s expensive to run a biotech company. Clinical trials cost a fair sum, so if the biotech company is testing out something new – and doesn’t have another high-performing product – the company’s going to take a major hit: and so are you. Though there’s a higher payout for stocks that aren’t rich with other investors, you are in greater danger of taking a fall. So riskier stocks are those companies that don’t have a diversified product base.

The Riskiest Biotech Investments

They say, “You can’t rush art.” Well, you can’t rush science either, so if you are an impatient investor who likes a simple form of investment, biotech is not the way to go. Some forms of biotech are wide open with limitless possibilities, but also seem to take forever to enter the mainstream. How long have we heard about “virtual reality” but there is no mainstream application of this technology. The same goes for something like Nanotechnology. It’s a hugely open field, but also in its infancy. You’re likely not going to see a return on your investment by next Wednesday. As fast as the world of technology moves, some investments could take decades to materialize, albeit for a whole lot of money.

Another shaky investment possibility is genetically modified food. Though the industry touts genetic engineering as potentially a way to solve world hunger, there is a limited – and dwindling – consumer base for these types of products. Put simply, there’s a backlash against GMO’s, as people become more health-conscious and more concerned about the safety of GMO’s.

Genetically-engineered medications are also problematic. Though they have great potential and the possibility of cutting down on clinical trials, the reality is that it can take 10 to 15 years for a genetically modified drug to gain FDA approval. Gene therapy has not yet panned out as a stable money-maker after being heralded as a revolution in medical biotechnology. Many gene therapies replace current drugs with a differing list of side effects, which has cut into their earning potential.

The trouble with biotech is that you cannot begin to predict how a new advancement will perform. So while in this day and age, green technologies offer great possibilities, there is the prospect that one green product will succeed and another will fail. This is true for every wing of biotech: pharmaceutical, agricultural, environmental, and so on. Not all biotech investments have the long-term prospects of nanotech. Some are plenty volatile in the short-term.

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What on earth is biotechnology? Think of it as ways that man controls nature. That could be read negatively, but it doesn’t have to be. Biotechnology comprises all of the ways that humans try to overcome natural limitations be more cost-efficient. Examples of biotechnology are pest-resistant crops, new animal breeding, or pharmaceutical research. Certainly some wings of the biotech industry are controversial – such as cloning – but humans can “manipulate” nature in positive ways as well: producing more nutritionally-complete crops on a larger scale, aiding third-world countries. Really, something so simple as fermenting grapes into wine is a form of biotechnology, so biotech casts a wide net. It’s not all about playing God with nature and trying to turn a profit.

Of course, what’s a burgeoning industry without talk of profits. Biotechnology is also one of the fastest-growing forms of investment. Chances are that a new investor wants to get involved in the new developments in the biotech industry. Sure, investing in wine can reel in some money, but that’s not what is commonly referred to in biotech investment. True biotech investment is based around new technologies, such as gene manipulation. Some of these methods are already being used and some are yet to be discovered: which is why it’s so wide open for investment.

Where is Biotech Today

The new wave of biotechnology is mainly centered around health issues and extending human life, though agricultural advancements are also a large part of biotechnology investing. But whereas the issue of manipulating crops is fairly straightforward and understood, human life extension via gene manipulation has a much larger ceiling. For instance, imagine a product that would reverse aging – this would be hugely profitable in a short amount of time. So while agriculture biotechnology (green biotechnology) is potentially lucrative, medical biotech (red biotechnology) has even more potential, as so many techniques have yet to be discovered. Gene therapy is in its infancy.

Other forms of biotechnology are white biotech, which is biotechnology applied to industrial practices – such as creating and utilizing an enzyme that will break down harmful chemicals. Blue biotechnology refers to ocean and water-based biotech, but this type of biotech is less prevalent. Put that all together and you get the Bioeconomy.

Investing in Biotech

Like all forms of investing, there are riskier forms of biotech investing than others. Generally, biotech investing is higher risk overall than other types of investing – but again, like other investing, the higher the risk also means the higher the payout. Are you interested in stock investing or becoming a major venture capitalist in the biotech industry? There are penny stock options available that can be found through a broker, or you could do this yourself if you’re not a newbie. It depends on the investor, but you’re going to want to choose a biotech company based on location, industry, proof of concept, niche market, good history, and lucrative potential.

The less risky stocks are established companies, like large pharmaceutical companies. This is recommended if you’re also going to be investing in riskier ventures, as big pharma stocks are a more stable investment. Investing in biotech does take some significant research. A biotech research company is likely dealing with some very technical information. You want to make an informed decision about an investment and you need to make sure that a biotech’s company’s goals are achievable. They could rattle off a long list of technical details that sound impressive, but may actually be far-fetched. You need to be able to know what you’re reading, so a partnership with a science-minded investor may be necessary.

To get you started, here’s a list of the top 100 biotech companies, ranked by revenue. Here are the top biotech buzz stocks for 2008. As mentioned, you may want to invest in a start-up because these have the most earning potential per dollar (and also the greatest risk) but this of course means that the company does not have an established history. If this is the case, go with a biotech company run by people who have had proven success in the past. As with other forms of investing, diversification across industries and types of companies is recommended.

Check back tomorrow when I’ll talk about where to start investing in biotech.

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