Greg Madison: If there’s one sector that’s primed for explosive growth right now, it’s biotechnology.
Its position as a new market leader in the tech sector cannot be overstated. Clearly, investing in biotech is an idea few can afford to ignore.
Genentech, the first biotech company, was formed in 1973 and was the first to go public in 1980, which launched the biotech sector.
Though the sector is only 33 years old, humans have been using varying forms of biotech for thousands of years, before anyone was investing in anything.
It’s not new. All the way back to the Neolithic period, 9,000 or 10,000 years ago, humans began to experiment with agriculture. Farmers selected good strains of emmer wheat, or they domesticated wild aurochs to become modern cattle, or they used two-row barley for brewing beer.
This was biotechnology in its purest form: the application of natural processes and functions to human technology.
In 10,000 years, biotechnology hasn’t looked back. Now, in the second decade of the 21st century, biotechnology is accomplishing feats that would have seemed like magic to our forebears.
Nevertheless, we are on the cusp of some truly amazing discoveries. There is a tier of biotech companies working around the clock on products with amazing potential.
One of our favorites is small cap Organovo Holdings Inc (NYSEMKT:ONVO). Organovo’s most intriguing product is three dimensional human tissue. It synthesizes human tissue for use by researchers.
The applications are endless. With a limitless supply of human tissue, the testing process for many researchers becomes vastly more doable and simpler. No need to wait for human or animal test subjects, for instance, when needing to test a new substance or technique.
And Amgen Inc. (NASDAQ:AMGN) is a must-own for any biotech investor. It is the world’s largest biotech company by revenue – where it is absolutely cleaning up with its innovations. It owns some of the most successful drugs of all time, including Epogen and Neupogen, two drugs that fight anemia and a low white blood cell count. Amgen is on the expensive side, but it still represents a great investment.
Do Your Homework Before Investing in Biotech
You must do your due diligence when investing in biotech. Many biotech issues are small- to micro-cap, with all the volatility and uncertainty, all the dizzying highs and terrifying lows such investing entails.
Before investing in small-cap biotech stocks, you should carefully examine the company’s fundamentals, its offerings, and whether or not your portfolio can tolerate the volatility and risk associated with these stocks.
That’s not to say that all biotech stocks are volatile small caps, not at all. Small cap investing can be extremely rewarding, and there are plenty of small gems out there.
Sharing an office as I do with the estimable Bill Patalon, who just scored a huge win with the Cubist Pharmaceuticals Inc (Nasdaq:CBST) takeover of Trius Therapeutics, Inc.(Nasdaq:TSRX), I know this very well. Shares of TSRX are still on a rocket ride! And there are plenty of large, well-established (and thoroughly liquid) companies in the business as well.
Investors looking to avoid the thrills and spills of small cap investing might do well to look into some of the exchange-traded funds available with wide exposure to biotech issues.
These ETFs have benefitted from a great deal of money coming into the fund recently, and they are some of the best performers out there.
Investing in Biotech With Index-Crushing Performance
The Market Vectors Biotech ETF (NYSEARCA:BBH) tracks 25 biotech companies, with a focus on big companies and growth stocks. Some two-thirds of the stocks are large cap. As the ETF has little-to-no yield to speak of, this is not, repeat, not an income play.