Investing in Biotechs – An Industry With High Potential
Published 09-JUN-2017 15:25 P.M.
|
2 minute read
Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.
In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.
The below articles were written under our previous business model. We have kept these articles online here for your reference.
Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.
Click Here to View Latest Articles
The biotech industry is one where companies can live or die on the back of a single drug approval; and where share prices can move to a degree that reflects this extreme dichotomy. There are therefore potential profits to be made in the sector, but it pays to be cautious, and to take a measured approach.
The biotech sector benefits from spending and demographic trends, which sees an aging population in the western world spending increasing amounts of money to meet their healthcare needs. Indeed, per capita healthcare spending is rising at around 4.61% globally and around 7.24% in Australia per year.
There are a number of things to consider when evaluating biotech and pharmaceutical stocks, not the least of which is to consider the size and maturity of the company. This will give you a gauge on what to expect as a holder or investor of the stock.
For example, if you invest in a small, early-stage biotech company, there is a strong likelihood that your company will run at a loss, and pay no dividends. It may not even generate any revenues whatsoever.
There are a lot of early-stage companies in the sector that will never turn a profit. However, if you do invest in an early stage biotech or pharmaceutical company, and they are able to transition to profitability, you could be richly rewarded; as established businesses in the sector tend to enjoy high profit margins, high product uptake rates, and often government subsidisation. It can be very expensive to get approvals and patents for new drugs, and you must therefore consider how likely the business is to getting their products to market.
It should be noted that investing in any early stage company is highly prospective and does come with risks, so investors should seek professional financial advice if considering early stage biotechs for their portfolio.
Investing in a later-stage company in the sector can also be rewarding. Often the barriers of entry into competing in the sector can create defensible positions for companies who already enjoy things like Food and Drug Administration (FDA) approval, or patent protection for their products.
Because of the beneficial attributes enjoyed by the more mature biotech and pharmaceutical shares, they often trade at a premium to the rest of the market in terms of price/earnings (P/E) and dividend yields. It is therefore up to us as investors to determine whether that premium is worth paying. It is also important to assess whether there are competing products on the market, or in the approval pipeline that may cannibalise the market.
There is a lot to consider when choosing to invest in a biotech or pharmaceutical company, and it can be quite daunting for a novice investor. However, given that healthcare spending is forecast to increase in just about every country on earth for the foreseeable future, it is a sector that many investors could look to seek exposure to.
General Information Only
This material has been prepared by Jason Price. Jason Price is an authorised representative (AR 000296877) of 62 Consulting Pty Limited (ABN 88 664 809 303) (AFSL 548573) (62C), and a Director of S3 Consortium Pty Ltd (trading as StocksDigital).
This material is general advice only and is not an offer for the purchase or sale of any financial product or service. The material is not intended to provide you with personal financial or tax advice and does not take into account your personal objectives, financial situation or needs. Although we believe that the material is correct, no warranty of accuracy, reliability or completeness is given, except for liability under statute which cannot be excluded. Please note that past performance may not be indicative of future performance and that no guarantee of performance, the return of capital or a particular rate of return is given by 62C, Jason Price, StocksDigital, any of their related body corporates or any other person. To the maximum extent possible, 62C, Jason Price, StocksDigital, their related body corporates or any other person do not accept any liability for any statement in this material.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.