There’s no doubt that biotech is an extremely versatile and promising sector, and it’s only going to become more pervasive. But for anyone looking into biotech investing, there’s a few important things to be aware of before dropping our precious pennies just anywhere.
If you’re looking to invest in biotech but not quite sure about it, read on for some important information that you should know before dropping your pennies in this innovative but sometimes elusive field.
What is Biotech?
Biotech is a combination of biology and technology and is a science that typically involves some combination of both in order to improve the health of humans and the environment. Applications include clean energy alternatives, feeding the hungry, vaccines, and more.
Here are a few everyday examples of biotechnology applications:
- Biofuel is made via the conversion of plant sugars to ethanol, and these fuels are blended with regular gas for use.
- Pest-resistant crops are created via the incorporation of specific sets of genes which make them insect-resistant.
- Some antibiotics are made from plants engineered to be resistant to pathogens.
Tips for Investors
No matter what the extent of your investment or your interest in a given facet of this fascinating sector, you should always take precautions before investing. Here are a few steps no one should be skipping.
Research Current Financials
If you’re researching a particular company, pay attention to the fine print as you research their cash flow fluctuations and levels. Stocks in this industry can fluctuate wildly, often giving a (false) impression that they’re flying high. But a solid and consistent growth in cash assets is usually a positive signal.
Know the Company’s Age
Startups can be risky, but bigger companies that show steady growth are usually going to be a better bet. These types of companies typically go through three key phases: preclinical, clinical and commercial.
Preclinical will be the riskiest, but possibly the most in need of investors as well, so be wary if they are making promises that seem too good to be true. Commercial state companies will be the least risky, but depending on the product, can still face a large amount of uncertainty.
When you’re investigating a company, take a look at who they’re working with. Usually, bigger companies who are tied to smaller ones means that they’ve already done their research and not only trust that the smaller companies are going to make it, but the smaller company is backed by the more secure, larger parent company.
Research the Technology
Any prudent investor will investigate the financial state of a given company. But where biotech can get tricky is the actual technology that is being used and what it’s being used for. Looking at unbiased reports, such as peer reviews, research papers, and articles that discuss specific applications of a given technology, can give you a lot of insight.
Technology with a proven track record of success in clinical trials is likely going to be a better bet than something that’s brand new and has yet to be extensively tested.
Finding a broker or brokerage firm is a good idea for this type of investment, especially if you find one that’s well-versed in this arena. Finding a lawyer is also essential if you are planning on investing in startups. Because this industry is both complex and rife with uncertainty, it’s important that the documentation and paperwork is clear and official before anything is signed.
The Bottom Line
There’s plenty of potential in this industry, but there’s also plenty of potential for some serious losses if you don’t do your research. And because it’s a bit of a complex area, it’s important that you have a strong grasp of a particular product or company before placing your bets. The best idea is to choose a few areas that you find genuinely interesting and promising and diversify your assets accordingly.