Latest News: Technology |  Celebrity |  Movies |  Apple |  Cars |  Business |  Sports |  TV Shows |  Geek


Filed under: News


7 Things To Consider Before Investing In Biotechnology Stocks

Dec 20 2013, 2:41pm CST | by

10 Updates


Full Story

7 Things To Consider Before Investing In Biotechnology Stocks

The biotechnology industry is one of the hardest spaces to consistently identify stocks that will outperform.  Many companies seem to offer all the potential in the world, but very few seem to be able to capitalize on that promise.  Before risking one’s hard earned money, every investor should have a checklist and game plan for adding a biotechnology company to their portfolio.  Below are seven things that investors should look at before investing.

  1. Pipeline Of Products.  Diversified biotechnology companies (meaning multiple drug candidates) have a much better chance of sustained success over the long-term.  Additionally, there is built in diversification for investors if the company has multiple avenues for success.  Dendreon (NASDAQ:DNDN) is a classic example of what can happen to a company that relies on one product.  Dendreon was fortunate enough to receive FDA approval on their prostate cancer drug called Provenge.  Unfortunately, the company has had a great deal of trouble navigating the commercial world.  With several other treatments on the market now for this particular indication, Dendreon appears to be toast.  
  2. Market Potential.  There are many potential indications that a biotechnology company can develop a treatment for.  But in order to determine the risk/reward potential, investors need to look at the market size for the indication and the revenue that may follow.  Biotechnology companies that are able to grow from a hundred million dollar company to a multi-billion dollar company typically developed a platform that ended up being applicable to many indications.  Pharmacyclics (NASDAQ:PCYC) is an example of what can happen when a biotechnology is successful with multiple indications.  Pharmacyclics has soared in value over the past two years and is now valued at more than $7.5 billion.  The company’s pipeline now includes multiple forms of cancer and autoimmune disorders which should lead to sustained growth (the dream of every small-cap biotechnology investor).
  3. Competition.  Investors need to investigate whether a company is developing a breakthrough treatment in an area of unmet need, or it simply developing a better product than its competitors.  This can be difficult to research and will involve significant energy but it will be worth it.  When a company is developing a completely new and revolutionary treatment, the world is its oyster.  An example is Sarepta Therapeutics (NASDAQ:SRPT).  Sarepta Therapeutics is developing a drug for Duchenne muscular dystrophy called eteplirsen.  It is a breakthrough treatment which will likely dominate the market upon approval (should Sarepta be so lucky).  The potential revenue generating abilities caused shares of Sarepta to trade as high as $55.61 this year, more than a $2 billion valuation.  Unfortunately, shares of the company collapsed after the FDA decided it would need further Phase 3 data before approving.  However, should eteplirsen survive Phase 3 and be approved, the company’s value will likely surge to $2 billion and above just on potential.
  4. Cash On Hand.  Looking at a development-stage biotech’s available cash is mandatory.  One of the biggest risks facing investors in this industry, besides trial failure, is dilution.  A company can burn millions of dollars while conducting trials.  The funds for those trials need to come from somewhere (the investors).  Companies will typically conduct multiple secondary offerings in order to raise the cash necessary to get enough data to square off with the FDA.  Each secondary will cause a drop in significant drop in share price.  An example is Celsion Corporation (NASDAQ:CLSN).  Celsion was a promising cancer biotechnology company before they announced a Phase 3 failure in January 2013.  Unfortunately, the company has continued to dilute its shareholders, even after the poor data.  A look at the company’s annual statements will reveal how much dilution has taken place over the years and what an initial investor’s contribution is now worth.  It’s not a pretty picture and is a cautionary tale for investors.
  5. Institutional Holdings.  Before taking a position, one of my favorite weapons is to look at institutional activity.  This activity can be seen by going to the Nasdaq website and searching for a particular symbol.  Investors will be able to see all the institutions that hold a position in the company as well what activity occurred during the last quarter (position increases, decreases, new positions, and closed positions).  If the trend is up, it can be a sign that the “smart money” thinks a move up is coming in the company.  Pharmacyclics is a perfect example of how successful investors can be by utilizing this strategy.  A few years ago when shares of Pharmacyclics were in the single digits, the Baker Brothers, a renowned hedge fund, acquired a substantial stake in the company.  Since then, the fund has continued to add to their position.  Currently, the Baker Brothers own more than 9 million shares of Pharmacyclics, a stake now worth nearly $950 million.
  6. Leadership.  It’s a good idea to always look at who is running the company you are about to invest your hard earned money in.  Does the CEO have lots of experience in biotechnology/healthcare?  Have they built other successful companies?  Do they have a history of investing in their own companies?  These are just a few of the questions that investors should ask.
  7. Number Of Shares Outstanding.  As a general rule of thumb, I tend to stay away from companies that have shares outstanding of more than 150 million.  The reason is that biotechnology companies with a large OS tend to declare reverse splits.  While mathematically that doesn’t impact shareholder value, psychologically it does.  After the shares reverse, the tendency is for shares to trade back down.  A reverse split can result in substantial investor losses.

Source: Forbes


iPad Air Giveaway. Win a free iPad Air.

You Might Also Like


Sponsored Update

Update: 10

4 Firms In Iskandar Malaysia Get Facilitation Fund Totalling RM16.2 Million

Source: Malaysia Today

(Bernama) – Four companies have received the facilitation fund amounting to RM16.2 million from TERAJU@Iskandar Malaysia in an information sharing programme on business opportunities and assistance for the small and... READ MORE ...
Source: Malaysia Today   Full article at: Malaysia Today 1 week ago, 7:42am CDT


Update: 9

Selangor’s Watergate about to explode

Source: Malaysia Today

Anwar brought Wan Azmi to meet Khalid to try to resolve this matter. Anwar supports the RM2.5 billion claim but Khalid is stubbornly sticking to the figure of ...
Source: Malaysia Today   Full article at: Malaysia Today Jul 23 2014, 4:12am CDT

More From the Web

Update: 8

GLCs told to provide RM7 billion to develop Bumiputera firms

Source: Malaysia Today

(The Malaysian Insider) – Putrajaya has directed government-linked companies (GLC) to generate RM7 billion in business opportunities for Bumiputera firms this year, Prime Minister Prime Minister Datuk Seri Najib Razak... READ MO ...
Source: Malaysia Today   Full article at: Malaysia Today Jul 17 2014, 2:05am CDT

Update: 7

Rafizi shows proof of Putrajaya’s hand in contentious carpet-trader loan

Source: Malaysia Today

Eileen Ng, The Malaysian Insider PKR lawmaker Rafizi Ramli today revealed documents to prove Putrajaya interfered in the RM32 million Bank Rakyat loan to ‎controversial businessman Deepak Jaikishan. Rafizi (pic).. ...
Source: Malaysia Today   Full article at: Malaysia Today Jul 16 2014, 2:16am CDT

Update: 6

PAS MP claims Bank Rakyat loaned carpet-trader RM215m, interest free

Source: Malaysia Today

(Malay Mail Online) – Controversial businessman Deepak Jaikishan (pic) was given a whopping RM215 million interest-free loan from state-owned Bank Rakyat, a PAS lawmaker alleged today, despite Putrajay ...
Source: Malaysia Today   Full article at: Malaysia Today Jul 14 2014, 5:52am CDT

Update: 5

MRCB, Nusa Gapurna and PKNS settle suit over RM3 billion PJ Sentral project

Source: Malaysia Today

(The Malaysian Insider) – Malaysian Resources Corp Bhd (MRCB), Nusa Gapurna Development Sdn Bhd (NGD) and PKNS Holdings Sdn Bhd have reached an out-of-court settlement over the own ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 21 2014, 2:53am CDT

Update: 4

Story behind Syed Mokhtar’s ‘RM2.25 billion tax-exempt’ Bernas deal revealed, says PKR MP

Source: Malaysia Today

(The Malaysian Insider) – An innocuous written reply in Parliament has provided a peek into the cosy relationship between the Najib administration and Malaysia’s best-known businessman, Tan Sri Syed Mokhtar... ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 15 2014, 12:56pm CDT

Update: 3

Constitutional monarchy still murky concept

Source: Malaysia Today

After the RM4.5 billion land sale, the Sultan of Johor secured a 15% stake in MOL Access Portal (MOL) for RM396 million and took a 20% stake i ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 14 2014, 12:37am CDT

Update: 2

Sultan of Johor’s RM4.5 bil backlash?

Source: Malaysia Today

Has Sultan Ibrahim of Johor’s succession of big money deals over the last six months caused the tide of public opinion to turn against Johor’s royal palace? KiniBiz examines the... RE ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 11 2014, 8:49am CDT

Update: 1

Putrajaya denies carpet dealer given interest-free loan

Source: Malaysia Today

Eileen Ng, The Malaysian Insider Putrajaya today refuted allegations that Bank Rakyat had allowed carpet dealer Deepak Jaikishan to repay a RM32 million loan without interest following intervention from a... REA ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 11 2014, 5:44am CDT

Shopping Deals


<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.




blog comments powered by Disqus

Latest stories

Trending Now: Allison Williams, Sharknado 2 and Kate Upton
Trending Now: Allison Williams, Sharknado 2 and Kate Upton
Find below the top 3 trending news stories to start your day.
T-Mobile adds 1.5 million Subscriber in Q2
T-Mobile adds 1.5 million Subscriber in Q2
T-Mobile USA is on a wild run. The carrier added 1.5 million new customers in the last quarter.
Gilt Smartwatch unveiled Powered by HP and Designed by Michael Bastian
Gilt Smartwatch unveiled Powered by HP and Designed by Michael Bastian
Members only shopping announced the their own Smartwatch coming this fall.
Brian Williams announces Daughter&#039;s Role in Peter Pan Live
Brian Williams announces Daughter's Role in Peter Pan Live
This is very cute. News anchor Brian Williams announces that his daughter Allison Williams is playing Peter Pan in the NBC Christmas production Peter Pan Live. Watch the news segment below.

About the Geek Mind

The “geek mind” is concerned with more than just the latest iPhone rumors, or which company will win the gaming console wars. I4U is concerned with more than just the latest photo shoot or other celebrity gossip.

The “geek mind” is concerned with life, in all its different forms and facets. The geek mind wants to know about societal and financial issues, both abroad and at home. If a Fortune 500 decides to raise their minimum wage, or any high priority news, the geek mind wants to know. The geek mind wants to know the top teams in the National Football League, or who’s likely to win the NBA Finals this coming year. The geek mind wants to know who the hottest new models are, or whether the newest blockbuster movie is worth seeing. The geek mind wants to know. The geek mind wants—needs—knowledge.

Read more about The Geek Mind.