Investing in Biotech Stocks

Investing in the Biotech industry isn't always a cake walk. Biotechnology investing can require financial attentiveness, market insight, and ample knowledge of the biotechnology industry. That is to say, of all the industry sectors to invest in, biotech may be one of the harder ones to understand. The Biotechnology industry consists of medical pharmaceuticals and biological based medical treatment. Examples include antibiotics, gene therapy, and stem cell applications. The industry in general started taking off in the 1980's when some of the bigger companies that exist today got their start. This makes it a fairly new industry and while the biotechnology is arguably more developed than the information technology industry it is not too far ahead in terms of growth potential.

Risks and Rewards

Biotechnology investing has its ups and downs. In the 1990's when the industry was experiencing rapid expansion, innovation and success in this industry was a gamble that could pay off well. There are several benefits and consequences associated with investing in the biotechnology and one might be advised to pay heed to such factors before making investment decisions.

Risks

Lawsuits: The Biotechnology industry is vulnerable to lawsuits such as pharmaceutical related injury and/or medical malpractice directly related to the use of biotechnology.

Patent Expirations: In the case of pharmaceuticals, when patents expire, generic drug companies enter the production pool reducing market share and lowering prices.

Competitor Products: Better, more reliable and more effective products are created all the time. Since the industry is constantly developing, biotechnology products can become obsolete and/or second rate quickly.

Pipeline Drugs and Equipment: If new innovations and drugs aren't patent approved or likely to be endorsed by the Food and Drug Administration (FDA), future earnings growth may be reduced.

Market Saturation: The biotechnology industry isn't getting any smaller. There are many smart and able scientists entering the market every year making competition strong. The number of companies in the Biotech industry is also growing internationally. Market share is in high demand.

Stock Volatility: Biotech stocks can experience rapid increases or decreases in stock price, especially connected with FDA non-approval.

Rewards

Growth Industry: Since biotechnology is a rapidly evolving field with new knowledge and experimentation occurring every day there is a lot of room for growth in this industry. So long as there are new innovations, the market for biotechnology products and services can grow potentially yielding profitable biotech investments.

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Potential for large gains: Due to the high revenue generated by sales in this industry, an increase in sales has the potential to lead to high profit margins if operating expenses are managed well. This can lead to huge gains in Biotech investments.

Biotechnology Companies

Some Biotechnology companies are small and others are huge. Staying in the Biotech game can be expensive due to the high cost of research and low success rate of drugs. Size and longevity can be an indicator of potential success in this industry. The three biotechnology companies below have experienced a relatively strong rise in price over the years. However, most recently, either volatility and/or stock price stagnation can occur.

Genentech (DNA): Genentech is a subsidiary of Roche Pharmaceuticals which is a European company. Genentech is a large, well financed and experienced biotechnology company. It has been around long enough to prove its worth and staying power but has experienced stock volatility over the years. The company has not been immune to expensive lawsuits in the past, but is also a leading innovator of biotechnology products.

Forest Laboratories (FRX): Forest Laboratories is the producer of a successful anti-depressant drug called Lexapro. FDA announcements have added warnings regarding the use of Lexapro during pregnancy. Such use can lead to pulmonary problems in new born infants.

Johnson & Johnson: (JNJ) Johnson and Johnson is one of the older Biotechnology companies around. While it has many over the counter pharmaceutical that differentiate it from many other biotech companies it does produce some prescription medications as well. Sustainable growth is an issue with this company. Since J&J is so large, it requires constant fiscal discipline, innovation, project management and subsidiary management to stay on top of its game.

Choosing biotechnology companies as part of an aggregate of diversified industries within an investment portfolio may be the way to go when it comes to investing in biotechnology. The choice to invest in biotech can be rewarding, if the companies one has invested in can develop blockbuster drugs and/or highly effective operational strategies. Unless an investor is just plain lucky or has an effective investing strategy already in place, choosing biotechnology companies to invest in could require research, foresight and significant knowledge of the industry.

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