“Biotechnology is an extremely specialised and complex industry and, quite bluntly, most investors (retail or professional) don’t have the education or knowledge to effectively understand the science or the commercial viability of a potential drug or product,” cautions Fergie.
Globally, the biotech industry is struggling, with the sector more than 50 per cent below its 2021 peak as a result of rising interest rates making their inherent riskiness less appealing to larger investors.
“The process from devising an idea to hitting commercialisation is generally around a 10-year process and requires many clinical trials and extensive capital to fund the journey to sales,” says Grady Wulff, a Market Analyst at Bell Direct.
Australia punches above its weight with a plethora of companies developing life-changing treatments, from spray-on skin to novel prostate cancer treatments.
There are over 80 companies listed on the ASX in the ‘biotechnology and life sciences’ industry, the majority with market capitalisations below $50 million, putting them in what I would consider as ‘highly speculative’ companies.
Clarity Pharmaceuticals, Telix Pharmaceuticals, and Neuren Pharmaceuticals are just a few of our Aussie success stories. From a more utopian perspective, biotechs play a critical role in furthering our species.
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If we are ever to cure cancer, achieve immortality, or cure baldness (please hurry!) it will be a biotech company that does it. Such life-changing treatments are why so many investors are seduced to invest in biotechnology companies. It’s the same reason that the likes of Bryan Johnson, the man attempting to defy biological ageing, and Elon Musk’s Neuralink, which aims to make man and machine one, set our imaginations running wild.
As a trader, I have had great success riding the share price momentum of biotechs into expected approvals, but disasters like that which occurred to Percheron serve as good a reminder why I never dare to hold into a binary outcome.
However, for the longer-term investor, biotechs can play a part in a diversified portfolio.
“There are different ways to invest in healthcare which caters to all risk profiles of investors,” advises Wulff. “For those risk-taking investors, looking at early-stage biotechs can offer great upside potential, and for those more risk-averse investors, adding a well-established biotech giant like CSL can offer safer returns over the long-run.”
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