In times of pandemics, medical biotechnology companies are gradually entering the limelight while biotech stocks show excellent investment potential. The battle with pandemics is still raging between companies specializing in medical research. Johnson & Johnson, Sanofi and even Pfizer – to name just the main ones – are actively seeking the miracle solution. But these companies are not alone in leading the race.
Behind these giants are listed biotechnology companies less known to the general public such as Novacyt for research for COVID-19 screening tests or Regeneron, for treatment against this respiratory disease, and therefore BioNTech to talk about the recent news. The latter has also taken advantage of the anxiety-provoking wave surrounding the pandemic to see their stock prices jump. Eurobio Scientific gained nearly 170% between March and April 2020 thanks to its progress on an automatic device capable of analyzing 120 tests per hour.
The spread of the new coronavirus globally since March 2020 has started the race for vaccines and treatments that can curb the disease. By announcing – on November 9, 2020 – to have found a vaccine effective at 90%, the laboratories Pfizer and BioNTech put the financial markets in turmoil: an increase of 2.95% for the Dow Jones; 7.57% for the Paris Bourse; 4.67% for London; or 5.43% for Milan. Although doubts remain about its long-term effectiveness, the vaccine promised by Pfizer embodies a new wave of optimism and demonstrates the influence of the biotech industry on finance.
Biotech investment is often highly speculative and reserved for sophisticated investors. The company’s life and its stock market price depend on a set of more than uncertain factors. However, it’s evident that the biotech companies’ dividends are gaining in importance and will in the future. There are investment strategies that earn income from various high-dividend stocks which is an excellent way to make profits for everyone searching to invest in biotech stocks.
How to determine which biotech stock will outperform
So, how investors determine which biotech stocks are able to outperform the rest? Tracking the analyst communities’ activity can be an effective strategy. The best way is to follow professional analyst communities’ insights since some valuable information can fly under the radar. In that way, it’s possible to find biotech companies going for less than $10 and above 100% upside potentials. These are for example Spectrum Pharmaceuticals, Seres Therapeutics, Akari Therapeutics as listed on the latest NASDAQ reports.
Highly speculative nature of biotech market
Beware that biotechnology companies do not generate a profit until no treatment has been discovered and then validated by the health authorities. Besides, medical research consumes a lot of liquidity: the initial financial contributions are important, and the debt can be heavy.
Therefore, the stock market appears to be an essential tool for any biotechnology company wishing to develop. The introduction into the financial markets will raise enough money to finance the costs of developing a drug. Investing in a biotechnology company is sometimes a bet on its ability to manage its cash flow and debt in the medium or long term.
Then, when treatment is developed, it must be tested and must go through different phases. Three research phases are lasting 10 to 15 years for a drug and 3 to 5 years for a medical device. These phases require testing the molecules on a few volunteers and then gradually on a larger population. On average, one in ten molecules is considered to pass these three tests, hence the highly speculative nature of biotechnology.
Companies generally present the results of internal research during conferences and congresses. Every positive development leads to skyrocketing the prices of stocks. Investors, therefore, diligently follow these announcements. Biotechnologies can come up against internal research problems that they must announce regularly. These events extend the deadline for commercialization and therefore add uncertainty for investors.