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Biotech, while immensely exciting, has proven to be a rather risky sector to get involved with. It has always been this way with drug development. Only 10% of clinical trial drugs ever make it to market. Promising research doesn’t always lead to incredible profits.
Still, there’s something very satisfying about pouring your cash into a company that quite literally saves lives. But, research can take an unimaginably long amount of time, and often does.
Millions of dollars in capital is chump change in terms of developing new drugs and is quickly burned through. The rate of success may therefore seem abysmally low when compared to other industries. For all of these reasons that seem to scream not to invest, there are just as many beckoning investors to be a part of truly fulfilling work. A shrewd investments biotech can pay off in innumerable ways, if you are willing to become educated about it and have set out the time to carefully calculate risk.
Here are the 3 reasons to invest in biotech:
1. The population is aging
Everyone grows old. It’s safe to assume this is not news to you. What you may not realize is that as our population ages, our demand for drugs rises. By the year 2060, it is estimated that there will be double the amount of older persons living in the United States, around 98 million. By 2040, the elderly will comprise greater than 20% of the US population. The US population is not the only one to expect this increase in their proportion of seniors, either. Investors would be smart to recognize this demographic and capitalize upon it.
2. You could be a part of something bigger
You may wonder if it’s worth it to pour your time and energy into getting to know biotech intimately. There are plenty of other industries that may require less time to get to know or may rely more on common sense and therefore are easier to grasp.
Consider for one moment the benefits of investing in biotech companies that develop life-saving medication. What if you could be a part of cancer research? What if you could invest in a new, powerful antibiotic? Or simply help alleviate symptoms of psoriasis? Too often we invest based solely on facts and figures. While this is important, we must remember why we invest. We invest for the future.
Money is a means to wealth, but is not a means in and of itself. How we wield our wealth is much more important than merely amassing it. The work you put into learning the ins and outs of the sector could, in the end, be far more advantageous than profiting from easy picks.
3. The industry as a whole is performing well
There are plenty of individual companies that do not perform well in biotech. Bad single stock picks are at the core of biotech horror stories. This may lead you to believe that the entire industry is cursed. Quite the opposite is true, however.
The growth potential of biotech is truly staggering. Often, when companies produce a viable drug, their annual revenues hover around the low billions. This fact attracts a steady flow of venture capital. Indeed, the sector itself has been performing very well for the last decade or so. Its 10 year annual returns are up 15-25%. For context, that’s more than double the increase for the S&P 500.
Ultimately, biotech is extremely hard work for everyone involved, but offers incredible rewards to the patient and the diligent. The viability of biotechnology relies on several different factors. It’s important to stay educated about the industry. Speculating without conducting the proper research will most certainly result in failure. The vast majority of biotech companies are not currently profitable. Historically, the growth of the industry as a whole is rather good despite salient examples of spectacular failures in recent memory, however.
The outlook is positive and points to rapid growth, but individually picking stocks can be quite a dangerous game.
So, while, there are many reasons to invest as the demand for drugs will most certainly rise due to our aging population, we must also realize gambling on “hot” picks could yield massive losses. Investing in biotech can be a seriously enriching endeavor, you only need to remain dedicated and focused to steel yourself against failure.
Check out our Category Bio-Tech for the latest chances in this Category.
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