Investing in biotech often proves to be a very risky undertaking but one that can also produce attractive awards if the business is successful. “Biotech is concerned with the development of new drugs and the research of medical conditions with the view to creating effective treatment drugs”, explains investment specialist Haim Toledano. “The reason why investing in this area is usually risky is that the failure rate for new drugs is fairly high”. All drugs must go through the process of passing the Food and Drug Administration (FDA) standards and then getting approval for production. This process takes a great deal of time and money and can also be very competitive
Biotech investors must consider many factors before investing. For instance, the potential biotech investor needs to be aware that every new drug developed must stand up to the scrutiny of the FDA. The developers must prove that the drugs are not only safe, but also effective in treating the conditions they were developed to treat. This testing process involves at least three clinical trials which is very time-consuming. If everything works, further approval must be given to manufacture the drugs which may also take a very long time.
Potential investors must also note that most biotech companies operate at a loss and therefore tend not to pay dividends. The only reward that may be reasonably expected is if newly developed drugs are approved by the FDA, marketed and generate high levels of demand. Successful biotech companies usually have at least two drugs in the pipeline, and also tend to develop novel drugs for which there are few or no existing treatments available. Potential biotech investors must have the patience to wait out the approval process, as well as the ability to spot potential biotech winners.