Book Review > Investing In Biotechnology Stocks

With the death of dotcoms this book is a timely piece on one of the alternate speculative sectors. The book is written by an investment professional to outline the huge scale and central issues of the biotech industry as a prelude to devising an investment strategy. The book concentrates on medical biotechnology and begins with a useful introduction to the industry and has an appendix that describes the basics of genetics. The bulk of the book comprises nine chapters, about 20-30 pages each, that are interviews of biotech fund managers, venture capitalists and biotech company managers.
Although concise and well written I found the interview style made it difficult to extract investor-specific information or guidelines that could be applied to selecting biotech stocks. Never-the-less, the book provides a overview on the strategic directions and opportunities of medical biotechnology, allowing retail investors to feel comfortable in using a fund manager whose professional expertise is likely to achieve better returns in this highly sophisticated field
The author notes that the long term prospects for the industry are extraordinarily promising but the best returns are likely to go to investors who follow developments closely and continuously. The key for success is obtaining Food and Dug Administration (FDA) approval for the product in the United States and that this may take a decade and cost hundreds of millions of dollars. The stakes are high, since failure at a late stage is common and often means the entire investment must be written off.
Towards the end of the FDA approval process its pretty clear whether the drug going to be a success or not but by this time such success has already been factored into the stock price. To capitalise on the such gains investors need to be making investment judgements early in the process. Fund managers working with medical experts and consultants visit the companies during these earlier stages. Potential winners are identified and invested in with continuos monitoring for further investment decisions as the process continues so that by the time the general market realises the stock is a winner the fund manager has already captured that gain.