Investing in biotech companies is risky business: Just one batch of bad data can send biotech investors running in the other direction. So what can biotechs do to attract and maintain interest in their company? Check out the Motley Fool’s 10 commandments to learn what experts are telling investors to look for when it comes to biotech stocks. The Fool points out that there are exceptions to the commandments, but as a general rule of thumb biotech that don’t follow them are a more risky investment. By knowing what investors are looking for in biotech, companies can avoid certain mistakes, making themselves more attractive for investment.
1. If a drug fails its primary endpoint but is still submitted to the FDA, it’s not likely to get approval. The Fool uses Abbott's Xinlay as a prime example of this commandment.
2. Beware of what exchange a biotech’s stock is on. All exchanges aren’t created equal and biotechs on certain exchanges may not be the best investment.
3. If a biotech doesn’t have any approved drugs, be prepared for unstable stock prices even if the company is relatively stable.
4. Companies developing drugs for certain kinds of diseases (such as Alzheimer's and several other indications) have a hard time gaining regulatory approval.
5. The larger and longer the trial, the more likely it is that something will go wrong.
6. Unproven technologies, such as cancer vaccines, are a risky investment because the technology may or may not work. Even if the technology is sound it may or may not work for a biotech's chosen indication.
Check back tomorrow for the rest of the Motley Fool’s biotech commandments. Article
The 10 Commandments of Biotech Investing: Part 2