The size of the market is not that important to me as we are moving away from ‘blockbuster’ drugs and moving towards more personalized medicine.
( learned with Vioxx, one drug for all drugs may prove to be harmful. Because we have the science and resources to better understand disease and target disease molecules more specifically, pharmaceutical companies can create specific drugs to work in specific populations. While this may reduce the potential market size, the likelihood of success through the regulatory processes increases. There are still unknowns, but there is also more supporting data to guide clinical trials towards better results. MRK)
As someone who enjoys any degree of control, it is difficult for me to invest in this industry. However, I believe it is an important industry and investment is needed to have the opportunity to bring new drugs to market to help cure what ails us. I don’t take this risk lightly, especially if I’m making a recommendation that could affect other people. I am fortunate to understand science, as well as all the complexities to be studied and the regulations that guide them.
What metrics should biotech investors look for?
Here are some of the things I use when evaluating biotechnology and drug development companies:
Publications and discussing data at conferences. Even if you don’t understand the science and the data presented, the fact that the data is made public usually suggests that the drug is showing favorable results (that the scientific community only publishes positive data is another topic). Scientists through education share information. In the pharmaceutical industry, drug candidates are often patented once they show some viability, so publishing data doesn’t pose a major threat to the business (as can be the case in other industries). Typically, a company will list news from a publication or conference presentation on the News and/or Events page of their website. If a company doesn’t share data, that’s usually a red flag for me to indicate that something is going wrong with the science.
Clinical trials. Drug candidates must go through the FDA regulatory process to be approved for the market. Fortunately for investors, the U.S. National Library of Medicine operates ClinicalTrials.gov, a database of clinical trials at various stages. One can use advanced search to find a company of interest (I look at both Sponsor/Collaborator and Sponsor (Lead)) to make sure what the company says about bringing a drug candidate down the pipeline is actually takes place. The site indicates the status of a clinical trial and may even present some preliminary data. It will also show where a trial is being run and who is running the trial, as well as the different phases. A company isn’t even allowed to list clinical trials on its Investor Relations page, so this is also a good way to gain more insight into the company.
A company’s pipeline. A drug candidate making its way through the development process often encounters a number of snags along the way. For example, it’s possible that a drug that behaved well in animal models might not do well in humans. Even if science seems sound, biology is complex and sometimes things don’t work the way they should. It’s good for companies to have multiple drug candidates in their pipeline so they don’t have to start all over again if a candidate doesn’t go through. The company should also not have too many candidates to divert attention and spread resources. When I look at a company’s pipeline, I like to see a nice progression of candidates, such as a few candidates at each stage of the drug development process. The candidates may be the same or a similar molecule for different indications or may be different molecular entities depending on the focus of the company. To me, having a broader pipeline suggests that the company focuses on growth while also creating a contingency plan in case a candidate fails.
Investing in the pharmaceutical and biotechnology industry is difficult, especially if it’s outside the scope of your education. But it can be done with less risk by understanding the additional items that companies operating in this industry should consider. These are the things I think about, but there are other variables to consider, such as the sales process, CMS fee, and how regulations can change over time. It can be challenging, but it can also pay off, especially when investing in a company means launching a drug candidate and helping someone who needs it. Investors can do well and do well.
About the Author: Dana Abromovitz, Ph.D., is a principal advisor for 7investing.com. You can find her top stock market recommendations by joining her service at 7investing.com/subscribe.