The stock market of the biotechnology industry is one of the most volatile sectors. The changes in the biotechnology stock prices and market trends are very erratic. They are next to impossible to predict for someone with little knowledge about the field of Biotechnology.
However, the Biotechnology stock prices still present some fantastic opportunities for investors and day traders who extensively understand the business. Investing in biotechnology can be quite a risky venture for a layman. Nevertheless, with little research and an opportunistic approach, the biotech stock market can prove to be quite nifty.
If you’re someone who likes to be on top of the daily happenings of the biotechnology world and have an interest in the field, you can invest in biotech stocks and have positive returns. However, there are a few nitty-gritty’s that you should get out of the way before you start investing your hard-earned money.
Read on to learn about the Biotechnology industry’s fundamentals, which will help you understand and predict the trend of biotechnology stock prices.
1. Introduction to the Industry
2. Importance of FDA
3. Factors to Consider Before Investing
4. Future of Biotechnology
Let us leave no stone unturned and begin by understanding a few things about the world of Biotechnology.
Most people confuse the biotechnology industry with pharmaceuticals. Though both sectors are focused on developing drugs that treat illnesses, there is one key difference between the two. A pharmaceutical company focuses on developing the drug through chemical components. Biotechnology companies develop the drugs through extensive research and clinical trials with the help of living organisms such as bacteria and enzymes. Hence the name Biotechnology.
In financial terms, the profitability of both companies varies by a considerable margin. Pharmaceutical companies often demonstrate steady growth and can give decent returns to investors. Whereas, due to extensive research, lower success rates, FDA issues, and lack of funding, many biotechnology projects do not come to light. However, the companies that can successfully develop the drugs and introduce them into the market often receive high increases, and biotechnology stock prices usually double in price in such scenarios.
Where in most other industries, the market trends and the stock prices can be evaluated and analyzed based on the business status of any company, things are a bit different in the biotech industry. In the biotech industry, in addition to understanding the success rate of the company to develop a particular drug, investors must also keep the FDA in view.
The Food and Drugs Administration (FDA) is the authority in the US that regulates and approves new drugs into the markets. The FDA standards are pretty strict and require three phases of clinical trials to receive approval with the desired results. The FDA puts together a special panel of experts in the particular field to assess the qualities and capabilities of the drug. Once the committee decides, the drug gets a go-ahead from the FDA and is approved for the market.
Investors should always consider the probability of a drug’s ability to impress the FDA panel and get their approval before investing & grabbing great biotechnology stock prices. It requires a certain amount of research regarding the drug, the company, and past trends of the FDA, to assess the stock’s performance. This is where it gets tricky. Since much of the sensitive data from the FDA is not available to the public, it gets difficult to read and analyze the trends. That is why biotechnology investors must always be on top of the news and latest developments.
However, when it comes to stock trading, it is no secret that fortune favors the bold. Hence, for the proactive investors who have confidence in their knowledge and expertise in biotechnology and can evaluate the future biotechnology stock prices, the industry can yield great results.
However, for enthusiasts and people with a great passion for biotechnology, it can be pretty lucrative to invest in biotechnology. Certain factors can help you assess the probability of success for the company and help you make your decisions. These factors include:
One of the major concerns for any biotechnology firm is running out of funds in the middle of development or clinical trial stages without any financial backer. The research and development of biotechnology drugs can take years to give satisfactory results, to get the FDA approval. Make sure the firm has enough assets and financial funds to support its products.
Because of the risks involved in successfully producing a biotechnology drug, many company board members and CEOs often sell the company or merge with a bigger firm to secure the assets to continue the project. In contrast, others sell the rights to their products for a hefty price after they get FDA approval. Many biotechnologies plan to hold exclusive distribution rights for their products and are hence quite a safe bet. Investors should dedicate some time to research the philosophy of the stakeholders and board members from news and other sources, to understand future trends.
Even with its capriciousness, the biotechnology stock market sector is a promising sector for big and small investors. Think of it like ‘electric cars’ in the late early 1900s, but with a much steeper growth possibility. Since the Covid-19 pandemic, the world governments and the world population have recognized the importance of better medical infrastructure with advanced machinery. This has catapulted the prospects for the biotechnology industry and is garnering support from local and state authorities for its research and development ventures. For keen investors, this can be the right time to get in the game and understand the ins and outs of the industry to have lucrative long-term and short-term results.