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Investing in biotech stocks
An investment in biotech can help mankind, but it's a waiting game and a gamble.
Biotech has an important place in the world. After all, the research being done can help people. But strict government regulations may put a damper on company profits and impact Australian investors' returns on biotech stocks.
What is biotech?
Biotechnology is the research and application of biomolecular processes.
These processes are used to create products and technologies designed to help improve our quality of life and support the planet. How? By helping us combat disease, improve the environment, harness clean energy, enhance food production and devise more efficient manufacturing processes.
Each time you take an antibiotic, drink a glass of wine or admire the newest designer dog breed on social media, you’re encountering biotechnology at work.
Biotechnology stocks are stocks from companies that research and produce biotech products, such as pharmaceutical drugs, vaccines, biofuels, genetically modified plants, biocatalysts and more.
But they come with a lot of risk. After all, you have to invest in the research to create the biotech product, without a guaranteed return on investment.
Why invest in biotech stocks?
Many biotech products – like pharmaceuticals – are a necessity. And staples like these have proven their capacity to weather down markets.
The COVID-19 pandemic caused many markets to tank. But stocks in companies looking for effective COVID-19 treatments and vaccines received increased interest. This is just one example of the down-market resilience of the biotech industry.
Biotech stocks can help balance your portfolio during an economic downturn while providing the opportunity for Australian investors to back groundbreaking technology that has the potential to alter and improve our way of life drastically. Biotechnology can and has changed the world – and investors in Australia can lend a hand in the process.
Risks of investing in biotech stocks
The primary risk factor for biotech investors is the long, arduous and costly process of bringing a concept through research and development to a consumer-ready product.
Many companies in this industry rely on approval from the US Food and Drug Administration (FDA) and the process can take years. There’s no guarantee that a drug in development will reach pharmacy shelves or that a new industrial pesticide will be cleared for public use. Some biotech companies funnel funds into projects that span years with nothing to show for it.
The scramble for a COVID-19 cure demonstrated the potential instability of biotech investment. As dozens of companies rushed to develop a viable vaccine, stocks in this sector saw a volatility surge as investors queued to back the right racehorse. But few players won and once vaccines got approved, the other companies fighting to be first saw a drop in share prices.
Investors must be willing to wait months or years for biotech stock investments to pan out. And even then, there’s no guarantee of return.
Biotech market projections
By 2025, the global biotech market is expected to reach US$775 billion, according to Global Market Insights – an impressive figure considering the market was worth just US$399 billion in 2017. Biopharmacy is by far the largest segment of the market, but bioinformatics, bioagriculture and bioservices are also on the rise.
Key market drivers include regenerative medical therapy, genetics in diagnostics and the advancement of artificial intelligence. Analysts forecast that the biotech industry is projected to attain a compound annual growth rate of 7.4–8.3% through to 2025.
Investing in the biotech industry
From startups with high hopes to well-established international corporations, there are numerous options for investors in Australia interested in purchasing biotech stocks.
This includes large companies like CSL Limited, Polynovo, Mesoblast and Telix Pharmaceuticals, which all trade on the ASX.
For a less targeted and more diverse approach to biotech investing, you can also try your hand at this exchange-traded fund.
- ETFS S&P Biotech ETF (CURE)
How to buy biotech stocks
Ready to invest in biotechnology? Here's what to expect from the investment process:
1. Research stocks
There are plenty of pure-play biotech companies, some with US roots and others headquartered abroad. The right stock for your portfolio is a matter of cost, risk and strategy.
Take a close look at the company's repertoire of pharmaceuticals and technology. Is it a well-established business with numerous products on the market? Or is the company still waiting to clear its first product for public use?
Do some research to identify which biotech stocks might be a practical fit for your portfolio.
2. Open a brokerage account
The next step in the investment process is to open a brokerage account. There are several online platforms to choose from in Australia and each platform offers a unique blend of features and services for different types of traders.
If you're new to investing, consider a beginner-friendly platform. If you've got some experience under your belt and plan on performing your own research, explore a platform with comprehensive research tools.
3. Purchase stocks
Once you've opened and funded your brokerage account, you can begin the process of selecting and purchasing stocks.
Search for your chosen stock by company name or ticker symbol. Once you've pinpointed the stock, enter the number of shares you'd like to purchase, select your order type and submit the order.
You can monitor the performance of your stocks by logging in to your brokerage account.
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Bottom line
Biotechnology is rife with potential but is often subject to strict regulations. Investor funds may be tied up for years and there’s no guarantee of a return.
To invest in biotech stocks, explore your brokerage account options across multiple platforms for the account best suited for your investment goals.
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