Posted on 20 April 2013.
Biotechnology stocks offer high risk/reward outcomes for serious investors, because biotech research drug companies produce products that have explosive upside potential. Typical lists of stocks that have the biggest gains and losses include medical and pharmaceutical companies because these investments respond dramatically to successful clinical trials or crushing failures. Finding a biotech company that develops a drug to treat a chronic illnesses could generate 200%–300% returns on investments within an incredibly short period.
Biotech investments carry severe risks because many of these companies have no track records or products until they demonstrate success and receive FDA approval for bringing new drugs to market. Small companies, even when successful, could lack the resources to develop their drugs expeditiously and fight to obtain patent protections.
Investors can invest more safely by investing in exchange traded funds, letting skilled managers assess risks and choose promising pharmaceutical companies. Private investors can handicap medical companies by looking for companies that are conducting research on treatments for AIDS, cancer, diabetes, neurological diseases and tissue regeneration. The need for these treatments generates fast-track marketing when companies demonstrate successful results.
Of course, each company needs to demonstrate sound financial resources and skilled medical management. Some investors only choose companies with at least two-year operating reserves of cash. Savvy investors also consider whether companies have successful product pipelines to provide steady capital and whether companies have staggering debt to manage.
Investors can search for market-ready companies that only need to negotiate a few hurdles before gaining FDA approval. Bad news could cause investors to panic, but successful results might send stock prices into the stratosphere within a relatively short time. Look for companies with strong management teams that include both scientific managers and business-savvy entrepreneurs. Choosing the best medical stocks requires sound market intelligence and thoughtful analysis of the risks and rewards.
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